Refinancing your Mortgage for Extra Cash

“Home sweet home” can mean “loan sweet loan” when it comes to launching your own business.  A cash-out home refinancing is a funding method that’s been used by many small business owners to launch their ventures.  It’s easier to get than a business loan, and could actually result in a lower monthly payment on your home mortgage if interest rates are favorable.

A Mortgage Can Make it Happen

A cash-out refinancing is different from a home equity loan. A home equity loan is usually taken out after you have a home mortgage, and has been traditionally used for home improvements or to pay off credit card debt. 

A cash-out refinancing is like combining a first mortgage and a home equity loan.  The money you’re cashing out from your home equity, and the amount you currently owe on your home loan, is rolled into one mortgage. 

There’s a potential extra bonus if you refinance using this type of loan.  Providing that the interest rates are lower, you may find that, even with the cash out, your monthly payment actually decreases.  Add in the fact that the interest you pay on the loan is tax deductible, and you and your business can get some terrific funding.

Cash-Out Cautions

Before you sign that dotted line and get the cash that your soon-to-be thriving business needs, you’ll want to be aware of a few potential pitfalls.  One is that you’re tapping into the equity of your house.  If some unforeseen event occurs that requires that you put the house up for sale, you won’t recoup as much profit from the sale due to the loan.  In fact, if you’re in one of those hyper-hot real estate markets and the housing bubble bursts, shrinking home prices may force you to sell at a loss. 

Another pitfall: home appraisers may pump up the value of your home so that a lender can offer you more cash.  Be careful to borrow only the money that your business needs.  An inflated appraisal won’t necessarily translate into an attractive price for a buyer. 

Finally, shop around for your loan and make sure you that get the best rate with the lowest fees.

A cash-out mortgage refinancing could be the rocket fuel you need to help your business blast off.  But you must act like a prudent small business owner.  Make sure that you don’t overextend yourself, and get the best deal the market can offer.  By combining common sense with this excellent cash-generating vehicle, you and your business can be off to a terrific start.

By MortgageLoan.com Staff Editor