Mortgage Refinancing Tips - part 2

by Bob Hartz

Using your Home Equity Many people have also sought to refinance their mortgages in order to extract cash from the home's equity for a remodel or a major purchase. Often, that major purchase is paying for one or more college educations. These arrangements can take the form of a home equity line of credit, from which you can draw down at will.

The other model that provides for cashing out equity is simply a home equity loan or "second mortgage," that returns your home equity to you in the form of cash. This loan will also retain the tax deduction on your mortgage payments that is allowed in your principal mortgage. Now, however, you have two loans, one with a more advantageous interest rate than the other. It's probably better to seek out another single large mortgage at the lower rate that has a cash-out option built into it.

Fixed Rate or ARM?

Once again, you will be facing the question of whether to take a fixed rate loan or an ARM. If you're getting into the refinancing game to take advantage of the lower interest rates on a house you're staying in, the fixed rate is the more reasonable option. If you plan to sell your home within five years, consider an ARM that is below even the low interest rates attached to fixed rate loans and just be sure to be out of that house before the bell tolls on that adjustable rate. To that end, it's important to obtain a refinancing package that does not include prepayment penalties. You should leave yourself the option of selling the property at the time and in the manner of your own choosing.

Copyright (c) Bob Hartz

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