Mortgage Refinance ? Should You Take Out All Your Equity?

Posted by Nick Niesen on October 29th, 2010

As more lenders offer the option to borrow 100percent of the value of property, homeowners are finding themselves faced with the question of how much they should borrow. This is especially true if you?ve established some equity in your home and are now looking toward a mortgage refinance. So should you take out a loan that equals 100 percent (or more) of the value of your home? Weigh your options before you make this decision.

The fist thing to consider is why you would want to refinance at 100 percent. Do you have a good use for the money or would it just be nice to have it? If you?re looking at buying something or paying off something, that home equity could be put to good use and the mortgage refinance at 100 percent of the value of your home could be a great idea. For example, if you have accrued significant credit card debt, you?re probably paying several hundreds of dollars each month in fees and interest. Paying the minimum monthly payments will hardly even make a dent in the amount owed and you?re likely going to pay thousands over the course of the debt. Instead of plodding along with those monthly credit card payments, a mortgage refinance could give you the money you need to pay the debt off completely. As a rule, you?ll be paying a much lower interest rate on your mortgage refinance than on the credit card debts.

Don?t forget to consider the amount of closing costs associated with your mortgage refinance, and also keep in mind that you?re going to be making a larger monthly house payment or making those payments for a longer period of time. Be sure you can meet those requirements.

You may also find that the equity can be put to good use for college tuition, buying a new car or even financing something you?ve been unable to afford any other way ? a vacation or a down payment on a vacation home. You?ve worked hard to accrue that home equity and some people feel that they should put that asset to work. A mortgage refinance will allow you to do just that.
There?s no doubt that your home equity is an asset. There?s also no doubt that many people simply accept the fact that they?ll make a mortgage payment for their entire lives. However, keep sight of the fact that you may not always have to make those mortgage payments if you put your efforts toward paying down the loan. Instead of a mortgage refinance, it may be time to focus on making some extra payments.

At the end of the day, only you can decide which course of action is best for you. If you do decide to refinance your mortgage, be sure that you have all the information you need to take this step wisely.