It looks like all the unscrupulous mortgage lenders out there are looking for creative ways to generate revenue during a slow time in our industry. Once again, the preferred method of revenue generation seems to be the time-honored NCR:
Needless Cash-out Refinance.
Some time ago I sent out an email detailing the different ways to pull cash out of your home. There are three: traditional cash-out refinance, home equity loan (HEL), and home equity line of credit (HELOC). Please feel free to reach out to me if you want more information on the last two. What I want to focus on today is the traditional cash-out refinance.
A traditional cash-out refinance involves paying off your current loan with a new loan that is larger, and taking the difference as cash back. This cash you receive is not income, and is, therefore, not taxable. It can be a good method of debt consolidation for some people.
The main problem with doing this is you will be trading in your current ultra-low, never-to-be-seen-again interest rate (especially if you got it from me!) for a much higher interest rate! Also, the closing costs will be MUCH, MUCH higher than what you can get with a HEL or HELOC. So, in short, it’s a really bad idea to do a cash-out refinance right now.
Chances are that a mortgage lender that purchases public-available mortgage loan data, or perhaps your current loan servicer, will be reaching out to you to try and talk you into doing one of these cash-out refinances. You may have already been contacted by someone.
Regardless, call me before you do anything. If you need to pull cash out of your home for any reason, there’s a really good chance that a HEL or HELOC is a much better way to go. The closing costs will be much lower, and you get to keep the low interest rate on your current loan. I will most likely refer you to a local lender in your area who specializes in this type of loan.
One other thing: it is a good idea to opt out of receiving unwanted marketing calls. We automatically do this of behalf of all our clients, but just to be sure, go to optoutprescreen.com where you can opt out of receiving unsolicited credit offers, or opt in (haha).