This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

When Cash-Out Refinancing Makes Sense

But if there is no substantial rate reduction, it would not pay to refinance just to get at cash locked up in the home. You wouldn't want to pay $10,000 to get a new mortgage just to buy a car with a low-rate loan. Even if you were to pay off a 20% credit-card balance with a new, 4.4% mortgage, once refinancing fees were considered, the savings might evaporate.

Third, consider the alternatives. You might pay only a few hundred dollars in application and appraisal fees for a fixed-rate home equity installment loan or floating-rate home equity line of credit. Five-year installment loans are charging about 7%, and many HELOCs charge 5% to 6% after the initial, lower rate expires.

Because a home equity loan is separate from the mortgage, the payments would end as soon as you pay off the balance. In a cash-out refinancing, you'd have to pay for that extra cash for the life of the mortgage.

Another alternative is to tighten your budget to save for the purchase you'd make with the cash-out refinancing, or to pay off your credit card debts faster. Use the BankingMyWay Credit Card Payoff Calculator to devise a plan.

Finally, if you do opt for a cash-out refinancing, consider making extra principal payments whenever possible to trim the debt ahead of schedule. With a fixed-rate loan, this will not reduce the required payments, but it will allow you to pay the mortgage off early, saving a bundle in interest charges over the years.

In effect, those extra payments earn a return equal to the mortgage rate, which is probably better than you can earn in bank savings.

>To submit a news tip, email: tips@thestreet.com.

RELATED STORIES:



Follow TheStreet.com on Twitter and become a fan on Facebook.

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,001.22 -38.27 -0.22%
S&P 500 1,988.40 -3.97 -0.20%
NASDAQ 4,538.5510 +6.4470 0.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs