Funding a home improvement is one of the most practical uses of a cash-out mortgage refinance in Missouri. It allows you to enhance the value of your property, can increase your profit when you sell it, and qualify you for a tax break.
Compared to other lending options, a cash-out refi might let you tap a high loan amount, snag a relatively low interest rate, and enjoy a long repayment period. However, many reliable masonry contractors in Kansas City do not consider it a good source of funds when tackling a patio construction project. Here are the reasons why other forms of financing can benefit you more:
You Can’t Access a Ton of Cash
Like any mortgage, a cash-out refinance involves closing costs. These fees can range from hundreds to thousands of dollars. Some lenders might not require you to pay for them upfront, for you can roll them into your loan balance or avoid paying for them altogether by agreeing to higher interest.
Nevertheless, your closing costs have to be paid one way or another. If you do not have a lot of home equity, you will not receive an extensive check at the end of the transaction.
If your closing costs are equivalent to $3,000, but your available home equity is only $6,000, then a cash-out might be worth the trouble. Based on this equation, the money you could tap is $3,000. It might be good enough to cover the expense of the patio project, but the sizable closing costs might render your new mortgage more expensive over the long term.
You Have Had Your Mortgage for Too Long
It only makes sense to apply for a cash-out refi when you have built enough equity on your property, but its financial rewards diminish the longer you have had your original loan.
If you have a fixed-rate mortgage, you will notice in its amortization schedule that your monthly payments are the same, but their interest and principal portions are not. Your mortgage lender wants to make a profit as early as possible to minimize the risk of loaning you the money in the first place.
In other words, you can’t significantly pay down your mortgage until you reach halfway through the term. If you reset the clock of your loan by taking out a new one through a cash-out refinance, you might end up paying for more interest overall.
You Do Not Intend to Stay Put Over the Long Haul
Before applying for a cash-out refi, it is imperative to identify your break-even point. This is the month where you will expect to enjoy saving money because of the transaction. If you have plans of moving to a different address before the break-even point, it does not make financial sense to replace your old mortgage with a new one then.
The cost of a new patio does not merit a cash-out refinance. You can fund it with other lending options like a personal loan without having to borrow against your house. Considering the long-term implications of a cash-out mortgage refi to your credit, you should not be too excited to apply for it when there are less risky financial products at your disposal.