Cautionary Cash Out Mortgage Refinancing Tip

by Bb from Houston, Texas

Ask Kate: Cautionary Cash-Out Mortgage Refinancing Tip! Hi Kate, it is nice to know that there is someone out there that has taken the time to answer questions people have regarding their mortgages. In my case, we are trying to refinance for the first time. We are looking to refinance to get a lower interest rate.



Bb continues... My parents bought their home for about $55,000. We have been living there for 13 years. Unfortunately my father is not working at the time. Only my mother and myself are.

So I have started the mortgage application process to refinance under my mother's name and my own. The remaining balance owed is $47,000 and we were also hoping to cash-out some of our equity in order to remodel the home.

Is there any advice that you can offer to help us through the process?

Kate Answers: Cautionary Cash-Out Mortgage Refinancing Tip

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Dear Bb, Look before you leap!

Before I share a story with you about cash-out refinancing, I'd like to say I understand how helpful refinancing to turn equity into cash can be for homeowners.

The lower interest rates! The hope for creating income tax deductions! But it is not free cash and does not come without risk.

Cautionary Cash-Out Mortgage Refinancing Tip I

The following is a true story. The particular homeowner, I'll call him Mark, lived in the Midwest. He held down two good jobs to support his growing family. But he regretted the day he jumped at the chance to refinance his mortgage.

He didn't just refinance his current balance, Mark increased it to pay off all of his debt. But to be borrow that much money, he was told to accept an adjustable rate mortgage.

It wasn't unusual that I met homeowners when they needed to clean up a mess from a previous refinance. Part of the goal of this website is to take my knowledge and experience from those years and share it with my Readers. Hopefully, it will save someone from costly errors with their mortgage.

Anyway, back to the story. A couple of years later, the mortgage rate began to adjust upward. And upward. His monthly house payments were unaffordable to the point that he started worrying about foreclosure.

No worries, a friend told Mark. Just declare bankruptcy. But he couldn't because now all of his debt was tied to his home. His only recourse was refinance or foreclosure.

This is what I want to warn you of. Learn from Mark's experience. Think carefully before you lien your home with too much debt.

Cautionary Cash-Out Mortgage Refinancing Tip II

What I am about to say may sound contradictory. Make sure you borrow enough money to complete the entire remodel.

I saw many homeowners who ran out of funds before their home improvements were finished. Yet they couldn't borrow additional money because lenders don't like loaning on houses that are torn apart.

But without more money, they could not complete the home improvements. They were trapped between a rock and a hard place. So plan well and do not underestimate the cost of construction. Then stick within your budget.

More Cash-Out Mortgage Refinancing Tips

Let's look at a couple of pages here at Get-Your-Best-Mortgage-Rate for more help. Go to Good luck. Consider all of your options and don't be rushed into making decisions. After all, you are the one who will be responsible for the monthly house payments.

Remember this! It is your home and your mortgage. No cares as much about them as you!

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Does Remodeling Require Lender Notification
by: Lisamarie from Quincy, MA

Do I have to notify my mortgage lender that I am doing a gut remodel on my house?

Hi Lisamarie, Kate here...

Yes and maybe not, depending on if you are currently refinancing. Here's what I mean.

If you are in the middle of a refinance, wait to start the remodel. You cannot close a traditional mortgage loan on a home that is torn apart, even if it is in the process of being remodeled.

Of course an exception to this is the remodel loan which falls under construction financing. Learn more about construction financing here.

Most homeowners who are not in need of financing probably never even stop to consider whether they should notify the lender before a construction project. But you should always read your loan documents you signed at the closing of your last mortgage transaction to be sure.

Also take into consideration that you might have C, C, & R's (conditions, covenants, and restrictions) in the area where you live that restrict remodeling, for example, adding a second story. There's also the pesky matter of county permits.

And remember, it usually ends up costing more than you think. So budget accordingly and do not rely on the hope of getting a new 1st mortgage or even a 2nd mortgage in order to finish the project once the house has been gutted.

Good luck and best wishes for your remodel, Kate

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You can also ask Kate about your mortgage at Refinancing Advice The Nuts and Bolts.

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