3 reasons I won’t do a refinance with withdrawal

Some homeowners like cash refinances, but I’m not going to go that route.

Mortgage refinancing rates have been at attractive levels since last summer. And unsurprisingly, many homeowners have rushed to swap their existing home loans for new ones on better terms. But in the area of ​​refinancing, there is the possibility of doing a cash-out refinancing. If you go this route, you will be borrowing more than your remaining mortgage balance and you can use that excess cash as you wish.

Cash-out refinancing is an attractive option for many people. And since I have a lot of equity in my home (i.e. I own a lot of my home), I could easily have done a cash refinance when I refinanced my mortgage. ‘last summer. Instead, I chose traditional refinance and probably won’t be looking to refinance anytime soon. Here’s why.

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1. I don’t want to increase the capital of my mortgage

When you do traditional refinancing, you are borrowing the same amount that is left on your mortgage. With cash-out refinancing, you borrow more.

Now, if you’ve only been owning your home for a few years, you may not have taken a lot of the principal off your loan. Because of the way mortgages work, during the first few years of your loan repayment, the majority of your payments go towards interest, not your loan principal. But since paying off my house for over 11 years, I’ve drastically reduced my mortgage principal, and at this point, I don’t want to add more and get into more debt – even though mortgage debt is the healthy kind. to have.

2. I don’t want to be tempted to spend money frivolously

Withdrawal refinances are extremely flexible in that you can borrow this excess cash for any reason. But I don’t think that’s a good thing, because it means any owner can take that money and spend it on vacations, electronics, or other things that just aren’t needed.

For my part, I have no real reason to do a cash-out refinancing. Some people take this route to consolidate other debt, but since I don’t have any loans other than my mortgage and don’t owe any money on any credit card, I don’t have to. Also, I don’t anticipate large home improvement projects in the short term. As such, if I were to do a withdrawal refinance, I would be tempted to take that money and spend it on a dream vacation – a good thing to do, but something I think I should save rather than to borrow.

3. Refinancing can be a problem

Refinancing a mortgage takes work. You should shop around for rates, complete applications, provide documentation, and be available to answer any questions your refinance lender may have. It’s worth the effort if refinancing a mortgage saves you money. But after recently refinancing, I’d rather not start this process over again. So even if a need to borrow money Is for me in the next few years, i might look for alternatives that don’t involve getting a new home loan.

For many homeowners, cash refinancing is a smart way to pay off debt or renovate a property at an affordable price. But I don’t see that being a good option for me anytime soon.

About Vicki Davis

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