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Find out how much your home is really worth

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How can I change the details of my mortgage?

We trust the data you tell us about your mortgage. If you do not think the data we have is correct, which we get from your credit account, linked account, or information you have told us, you can change it at any time by scrolling to the top of this page and clicking "Edit information." This opens a modal with your mortgage details. If you confirm the mortgage information, we'll update everything based on that.

What is a home's value?

Home value has a slightly different meaning if you ask a homeowner, appraiser or tax assessor. But in most cases, home value means the amount for which a house would likely sell, otherwise known as the current market value.

Mortgage lenders — as well as buyers and sellers — typically rely on professional property appraisers to calculate market value, but there are ways to determine home value on your own.

How do I determine how much is my home worth?

The home value calculation uses data gathered by Zillow. Known as a “Zestimate,” this home valuation algorithm looks at the recent sale prices of similar properties gathered from public records, such as tax assessments, as well as user-submitted data. The home’s physical attributes and location, as well as market conditions, are also taken into account by the formula, according to Zillow. Together, information about recent sales and asking prices helps determine what a house could be worth. Zestimates have a median error rate of 4.3% nationally. This means half of Zestimates were within 4.3% of the final selling price, while half missed the mark by more than 4.3%. The error rate may be higher or lower in your market.

Remember, this estimate of how much your home is worth is only a starting point. Hire a professional appraiser or get a comparative market analysis from a qualified real estate agent before buying or selling.

How does the home value impact what financial decisions I can make?

For home buyers and home sellers, knowing current market value helps you make smart decisions about how much to offer on a house you want, or how to price a home you’re selling.

As a homeowner, value is also directly related to your home equity. Equity is calculated by subtracting the mortgage balance from the home’s current market value. You build equity as you make monthly payments and pay down your principal, but other factors, most notably home price appreciation, can speed up or slow down the equity-building process.

With enough equity, you may be able to refinance into a loan at a lower interest rate or drop your private mortgage insurance. You might even be able to remodel your bathroom or pay off credit card debt through a cash-out refinance, home equity loan or home equity line of credit.

These are important financial decisions that should be made only after obtaining an accurate estimate of your home’s value.

What is home equity and how does it impact my financial freedom?

Home equity is the value of your home minus the balance of your mortgage. To put it another way, home equity represents the portion of the house you’ve “paid off” and therefore own. Equity increases slowly with each mortgage payment, but may grow faster if you make value-boosting home improvements or if home values rise in your area.

As a homeowner, equity is a valuable asset that directly affects your financial freedom. More equity means more ways to achieve financial goals. You can make home improvements, consolidate debt, cover emergency expenses or even pay college tuition by tapping home equity.

Don’t cash out or borrow against home equity just because you have it, though. Tapping equity can add years to your mortgage payoff and means less cushion if the home loses value. And if you have trouble paying the loan for any reason, such as losing your job, the lender could foreclose on your house.

You can tap your home equity with the following loans:

  • Cash-out refinance: Mortgages your house for more than you owe. You can generally turn 80% to 90% of your home’s equity into cash, and in some cases, get a lower interest rate than your previous mortgage.
  • Home equity loan: Allows you to borrow up to 85% of your equity at a fixed interest rate. Home equity loans are disbursed in a lump sum and repaid through monthly payments.
  • Home equity line of credit (HELOC): Allows you to borrow up to 85% of your equity at a variable interest rate, which means your payments could change every month. Instead of a lump sum of cash, HELOCs provide a limited line of credit you can borrow when needed, much like a credit card. Interest is paid only on the amount you take out.

Why might I want to refinance my home?

Refinancing replaces your existing mortgage with a new loan. Some reasons for refinancing are directly related to home value, while others aren’t. Refinancing might be a good idea if you want to:

  • Lower your interest rate:

    If mortgage interest rates drop after purchasing your home, refinancing could allow you to lock in a lower rate, reducing your monthly payment.
  • Change your loan term:

    Refinancing into a shorter-term loan, for example 15 years instead of 30, may increase your monthly payment, but it will also reduce payback time so you pay less in interest and own your house sooner.
  • Drop mortgage insurance:

    Refinancing can remove mortgage insurance in two ways. First, you can refinance from an FHA loan (these loans always carry mortgage insurance) to a conventional loan without paying PMI if you have built up over 20% equity on your existing loan. Second, you can refinance from a conventional loan with PMI to another without it if your current home value and mortgage balance puts you over the 20% equity mark.
  • Pull cash out of your home:

    As you pay down the loan and your home gains value, equity increases. When your equity stake is large enough, you may be able to turn some of it into cash through a cash-out refinance.

Use our mortgage refinance calculator to see how much a refinance could save you and get customized lender recommendations.

What factors can affect how my home value changes over time?

Unlike other assets, such as your car, a home often appreciates over time. In general, real estate appreciates because there’s only so much space for new development. As time goes on, there’s generally more demand for less land, driving up value. If demand drops, however, prices could go down.

Other factors that can influence changes in home value are:

  • How much the house sold for in the past
  • Quality of the neighborhood
  • Market conditions, such as the number of homes available and strength of the economy
  • Tax assessment
  • Nearby amenities
  • Square footage
  • Age and condition of the house and property

 

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Buying Peace of Mind: How to Buy a Used-Car Warranty

A certified pre-owned car with a warranty provided by the manufacturer is the safest bet in the used-car world. But if you’re not buying a CPO car from a franchise dealer, can you still get a warranty? Yes, but buying one can be tricky. The fact is, we all hope to find a company that will warranty a used car with 150,000 miles on it, sight unseen. But such companies don’t exist because there’s no way they can, as an example, buy everyone a new engine and transmission and still stay in business. So let’s look at the realistic options: Some dealer groups and used-car chains offer their own CPO warranty programs, but coverage is usually minimal. CarMax, which has more than 100 locations across the country, certifies its own cars, and everything it sells has a “limited 30-day warranty,” which is actually 60 days in Connecticut and 90 in Massachusetts due to local laws. CarMax also offers “MaxCare,” an extended service plan that expands the coverage to most of the mechanicals except for wear-and-tear items, fluids, wheels, glass, and trim. Check the website, which details what is and isn’t covered. Prices vary according to the coverage and car.

2010–2012 Chevrolet Camaro: A Certified Pre-Owned Guide
Feature: Pre-Owned Programs by Make and Model
Certified Pre-Owned: 2005–2009 Ford Mustang GT
There are also aftermarket warranties: In December 2009, we checked these out, and we didn’t like what we saw. A cluster of companies, most based in the St. Louis area, used high-pressure tactics to get signatures on warranty deals. One of the biggest, US Fidelis, previously known as National Auto Warranty Services, went bankrupt, and at least two of its executives went to prison. To avoid a scam, look for a company that has been in business for a long time. EasyCare, for instance, has been around since 1984. It was formerly purchased and owned by Ford, but the company’s employees and equity partners bought it back in 2007. The company sells its contracts outright, or through more than 2000 dealers, and while it recommends that you use the selling dealer for service, any licensed repair facility is acceptable. There are four different levels of coverage, and price varies by the level, the vehicle, and its mileage. The costs, however, are often negotiable.

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Residential Security Made Easy

As a resourceful hub for all topics residential security, we plan to cover the latest in industry trends, technologies, and applications. But, most importantly, we'll explain what it all means to you as a homeowner.

Planned blog posts span six core topics:

  1. Safety: Technologies and tips to create a personalized, supportive and responsive security system that keeps your family safe.
  2. Tradition: Lessons learned, best practices and insight drew from more than 40 years in the industry.
  3. Innovation: Highlights from industry trends, so you can make smart choices that meet your needs today and into the future.
  4. Partner: Purchasing considerations when evaluating potential vendors, and pointers for a smooth installation process. Plus, news and updates from Vector Security.
  5. Convenience: Solutions and applications for nonintrusive, integrated systems that make life easier.
  6. Quality: Insight into top technologies, manufacturers and service levels to ensure your system is crafted for top performance.

That said, this blog is created with you in mind, so please share any topic suggestions or questions you'd like answered in the comments section below.

The industry is on a transformational cusp, and we look forward to sharing it with you!

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5 Tips for Finding the Best Refinance Mortgage Lenders

 5 Tips for Finding the Best Refinance Mortgage Lenders
we adhere to strict standards of editorial integrity to help you make decisions with confidence. Many or all of the products featured here are from our partners. Here’s how we make money.

When you decide it’s time to refinance your mortgage, either with a better rate, lower payment or a change in terms — or to get some cash — it’s natural to think, “I’ll just go to my current mortgage lender.”

And that’s fine, as long as you take these 5 steps to make sure you get the best refi deal.

How to find the best refinance mortgage lender

1. Get your credit score for free


2. Shop around for the best refi
 
3. Negotiate for the lowest lender fees 
 
4. Know the difference between your payment rate and APR
 
5. Consider how well lenders match your situation 

Best refinance lenders for the online mortgage experience

These lenders offer easy-to-use web portals and online support for borrowers who want to apply for, track and close a refinance online.

    
4.5NerdWallet rating
 
  • The biggest online mortgage lender in the U.S.
  • Fully automated process that imports employment and income data, credit scores, property info and more
  • Gives a loan decision in minutes
  • Rocket Mortgage review
Get started
    
4.0NerdWallet rating
 
  • Offers refinance mortgages with no origination fees or broker commissions
  • Minimum 620 credit score qualification
  • Automated suggestion engine will determine if there are things you can do to lower your rate
  • Lenda review
Get started

Best refinance lenders for customer service

If quality customer service is a top priority, look into one of these lenders.

suntrust mortgage
    
4.0NerdWallet rating
 
  • Flexible options for borrowers with low down payments and nontraditional credit histories
  • Offers assistance at every point during the mortgage process
  • Provides customer service in its physical locations, online and via chat or phone
  • SunTrust Mortgage review
Get started
    
4.5NerdWallet rating
 
  • Has hundreds of positive reviews on sites such as the Better Business Bureau, Yelp and LendingTree
  • Boasts a more than a 95% customer satisfaction rate
  • Provides a completely digital mortgage platform for both refinance and purchase customers
  • Guaranteed Rate review
Get started

Best credit union refinance lenders

If a big bank or online lender just isn’t for you, consider joining and refinancing through a credit union.

    
3.0NerdWallet rating
 
  • A national lender with nine branch locations in four states
  • Get a no-hassle mortgage comparison by filling out an online form. A loan officer will respond within two days.
  • Considers alternative credit data when underwriting
  • Connexus Credit Union review
Get started
    
3.5NerdWallet rating
 
  • A smaller lender that offers more personalized service
  • One of the leading digital-first credit unions in the country
  • A portfolio lender with flexibility in its lending criteria
  • Alliant review
Get started

Best mortgage refinance lenders: summary

  • Rocket Mortgage: Best for online experience
  • Lenda: Best for online experience:
  • SunTrust Mortgage: Best for customer service
  • Guaranteed Rate: Best for customer service
  • Connexus Credit Union: Best for credit union lenders
  • Alliant Credit Union: Best for credit union lenders

More from NerdWallet

  • How much house can you afford?
  • Compare current mortgage rates
  • Calculate your refinance savings
NerdWallet’s selection of mortgage lenders for inclusion here was made based on our evaluation of the products and services that lenders offer to consumers who are actively shopping for the best mortgage. The six key areas we evaluated include the loan types and loan products offered, online capabilities, online mortgage rate information, customer service and the number of complaints filed with the Consumer Financial Protection Bureau as a percentage of loans issued. We also awarded lenders up to one bonus star for a unique program or borrower focus that set them apart from other lenders. To ensure consistency, our ratings are reviewed by multiple people on the NerdWallet Mortgages team.
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An Auto Warranty Can Help You Avoid Paying Unnecessary Car Costs

Motorists tend to become obsessed with their cars. They wash and wax them constantly to keep them looking brand new. Even though we love our cars so much, it is still important to not pay unnecessary car costs. Here are some things that you may be wasting your money on:

1. It is not always a necessity to fill your tank with premium gasoline. Regular gasoline is cheaper and if it does not cause engine knock, then it is okay to use. The purpose of octane grades is to avoid engine knock. Therefore, if regular gasoline does not cause engine knock, it is okay to use in your tank.

2. Usually car manufacturers advise getting an oil change done on your car every 5,000 to 7,000 miles. However, some motorists think that it is a necessity to get it done every 3,000 miles. This is only a necessity if you are very hard on your car.

3. Lastly, motorists will waste money getting car repairs done by a dealer. Independent shops can do a great job and at a cheaper price. Having an auto warranty can help you save money on maintenance and repairs.

It is good to know where you are wasting money on your car so that you can break those habits and be a bit nicer to your wallet. Do not let other people talk you into paying for car costs that are not a necessity.

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Ask These 5 Questions Before You Refinance to a Shorter Mortgage

 Ask 5 Questions Before You Refinance to a Shorter Mortgage
we adhere to strict standards of editorial integrity to help you make decisions with confidence. Many or all of the products featured here are from our partners. Here’s how we make money.

You might think that refinancing your mortgage to a shorter-term loan is a win-win: You save on interest and pay off your home sooner. But many mortgage experts say there are better ways to invest extra money you might have than putting it into your home.

After all, paying off your home is just one of many important financial goals. You also need to save for retirement, put money aside for college if you have children, and buy life insurance, to name just a few. These may pay off in ways that make them wiser investments than paying down your mortgage faster.

Sometimes sticking with a longer-term loan just makes more sense: The tax benefits of the mortgage interest deduction last longer and you’ll almost certainly have a smaller monthly payment, leaving more cash on hand to help you reach those other goals.

Don’t get us wrong: Refinancing to a shorter-term loan might be a great move if you have extra cash and a stable job situation, but remember, your mortgage is just one piece of your personal-finance pie.

To figure out whether paying your home off sooner makes sense for you, ask yourself these five questions:

See current cash-out refi rates

How much will my monthly payment be?

For some homeowners, especially those who have young families or who are cash-strapped for other reasons, squeezing an extra few hundred dollars out of the monthly budget and limiting access to ready cash isn’t advisable, says Michael Dunsky, branch manager of Guaranteed Rate in Franklin, Massachusetts.

“The first question I usually get from borrowers is, ‘What’s the lowest rate I can get?’ ” Dunsky says. “The answer is always a shorter-term loan, but the mortgage payments are about 25% higher on a 10-year fixed-rate loan, for example, than a 30-year loan. That’s not sustainable for a lot of people.”

Also, if you want to refinance to a shorter-term loan, your debt-to-income ratio must be low enough to prove to a lender that you can afford the higher monthly payment. For most loans, your DTI should be no more than 36%, according to Fannie Mae. Keep in mind that lenders include all your debt when calculating DTI and will hit you with a higher rate if you have a high ratio. So if you have a lot of credit card debt or a sizable car payment, prepare yourself for a higher mortgage rate.

See current cash-out refi rates

Will I be able to meet my other financial goals?

A mortgage refinance to a shorter-term loan may work if you have few long-term debts and you have enough money coming in each month to pay all of your bills (with extra cash to spare). But if your budget is tight or you’re not paying attention to other savings, putting more money into your home could mean you’re selling yourself short, says Craig Strent, CEO of Apex Home Loans in Rockville, Maryland.

“When you invest outside of your home there are additional tax benefits, and you’ll have more liquidity,” Strent says, adding that you’ll also build wealth more quickly this way.

Rather than building equity in your home faster, it might make better financial sense to put that money to work in other ways, such as a 529 college fund, retirement and brokerage accounts, life insurance policies, and savings funds for big purchases down the road (vacation home, anyone?).

See current cash-out refi rates

Is being completely debt-free a priority for me?

It used to be that people stayed in one house for the long haul and aimed to own it free and clear. (Oh, and they paid off their credit cards every month and had little to no student loan debt. Those were the days, huh?)

You’ve probably heard finance experts tout the debt-free philosophy in books and on TV. Although being debt-free is an admirable goal, it’s not always practical when you take into account increases in the cost of living, limited income growth and fluctuating property values, Dunsky says.

“When you invest more money into your home, you won’t be able to tap into that equity until you sell or refinance,” Dunsky says. “Figure out whether you can do all the things you want to do with your money without relying on your home’s equity. If the answer is ‘no,’ then a shorter-term loan probably isn’t the way to go.”

See current cash-out refi rates

How long have I lived in my home, and do I plan to stay?

Depending on how far along you are on repaying your mortgage — and how long you plan to stay in your home — moving to a shorter-term loan can be an expensive mistake.

Mortgage payments are front-loaded with interest. So if you’re on year 18 of your mortgage, for example, you’re likely paying more toward your principal than interest at this point. If you refinance to a 10-year loan, you’ll pay more in interest upfront, Dunsky says, and you might actually lose money once closing costs and refi fees are taken into account.

Also, the average first-time homebuyer plans to stay in the home for just 10 years, according to the 2015 National Association of Realtors Profile of Home Buyers and Sellers survey.

If you plan to stay in your current home just a few more years, refinancing to an adjustable-rate mortgage at a five- or seven-year term will save money overall, Strent says.

With an ARM, your interest rate stays the same for the first few years. After that initial fixed-rate period ends, the rate can adjust up or down annually over the remaining life of the loan. You’ll need a larger down payment to qualify for an ARM, but it provides the stability of a fixed-rate mortgage for a set time at a lower cost than many other loan types.

Strent notes that a lot of first-time homebuyers overpay tremendously on their loans. Why? They stay in their homes for a relatively short time, so they could have used lower interest rates with an ARM rather than having paid more with a 30-year fixed-rate loan.

See current cash-out refi rates

Can I pay my loan off faster in other ways?

Refinancing isn’t the only way to shorten your mortgage. You can simply pay more each month without committing to a shorter-term loan.

One approach is to take your current mortgage payment, divide it by 12 and add that amount to your monthly payment, Dunksy says. (Be sure to note that the extra amount is to go toward principal, not interest.) If you make those additional payments consistently over time, you could pay off your mortgage in 23.5 years instead of 30, he adds.

Or, you could have your mortgage broker crunch numbers on what the payments would be on shorter-term loans and simply make those exact payments each month without going through the motions of refinancing. If you’re short on cash some months, you can simply revert to your standard payment amount without the risk of penalties, Dunsky says.

Strent offers this tip: If you can afford only one extra payment each year, make January’s payment before Dec. 31 to get the interest counted toward the current year’s interest deduction on your tax bill. You’ll realize the savings now rather than later, which adds the instant-gratification factor.

Whatever you do, both Dunsky and Strent agree that going on a biweekly schedule (paying your mortgage every other week) is a bad move; the penalties are stiff if you miss a payment, and there are setup fees.

See current cash-out refi rates

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Is It Time to Refinance Your ARM to a Fixed-Rate Mortgage?

iStock_000061885934_Small-570x225

Adjustable-rate mortgages have been a favorite funding choice, especially for first-time homebuyers, but the prospect of rising interest rates is causing many borrowers to rethink their home loan strategy.

“Honestly, the last 10 years have been awesome for people on ARMs,” Steve Garrett, a mortgage banker in Kansas City, Missouri, with Armed Forces Bank, tells NerdWallet. “A lot of people have ridden the ARM wave, if you will, for quite a while, and they’ve done well on it. But they know it’s the end of the ride, and it’s time to get serious and get into a fixed rate.”

However, making the switch — refinancing from an ARM to a fixed-rate mortgage — isn’t for everyone. It’s not just about interest rates; you’ll also need to consider your personal circumstances.

Ask lots of questions when considering a fixed-rate refinance

“Every situation is different,” says John Schleck, senior vice president at Bank of America. “Get professional input; sit down with a loan officer. Go over your entire situation, not just your mortgage situation but really look at all of your finances. When are you thinking about retiring? How long are you going to be in your house? There’s so many questions I think you’ve really got to look at, not just a simple answer to, ‘I’m in an adjustable rate and fixed rates look really good, let me just jump over there.’ ”

Garrett at Armed Forces Bank suggests some additional questions to ask yourself: Is this your forever home, or are you just a few years from an upgrade or a downsize? If you plan to stay in your home for a handful of years or less, the ARM may continue to serve you well, if you can absorb potential interest rate increases.

Your ultimate decision on whether to convert from an ARM to a fixed-rate mortgage will depend on your cash flow needs and your tolerance for interest rate risk, he says.

Look for your ARM reset notice

Garrett says homeowners with adjustable-rate mortgages should be on the lookout for annual reset notices: written notification to borrowers of the date and amount of any change in their interest rate.

“Normally, it’s three to six months before the rate is due to adjust,” Garrett says. “For the last, I would say, 10 years, people with ARMs have benefited greatly because rates across the board on everything have been so stinking low. And so you have people who bought a house six, seven years ago with an adjustable rate and year after year, their rate has actually continually gone down — and their payment has gone down.”

But he says that trend is set to reverse if begin to creep higher.

 

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Best Mortgage Refinance Lenders of February 2019

we adhere to strict standards of editorial integrity to help you make decisions with confidence. Many or all of the products featured here are from our partners. Here’s how we make money.

The best thing about refinancing your mortgage is that you’ve been through the home loan process before — but a lot may have changed since then. And there are more refinance lenders and more loan options now than ever.

Some refinance lenders offer the latest in online capabilities, others specialize in Federal Housing Administration or Veterans Affairs loans, and others will still discuss your loan options with you face to face.

» MORE: Get notified when refinancing will save you money

NerdWallet has picked some of the best mortgage refinance lenders in a variety of categories so you can quickly determine which one is right for you.

Best overall refinance lenders

Rocket Mortgage
LEARN MORE

at Rocket Mortgage

Min. credit score

620

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for refi borrowers with little time. Rocket Mortgage brings smart-phone app convenience to the refinance process. And online income and asset verification speeds the process.

 

Lenda
LEARN MORE

at Lenda

Min. credit score

620

National / regional

Regional

NerdWallet rating
 
Why we like it

Ideal for refinance customers in the states it serves. Lenda doesn’t charge upfront origination or broker fees on refinance loans, which close in around 36 days.

 

Navy Federal
LEARN MORE

at Navy Federal

National / regional

National

Min. down payment

0%

NerdWallet rating
 
Why we like it

Ideal for military members and their families. Navy Federal Credit Union offers a wide range of mortgage products and low minimum loan amounts, and considers alternative credit data.

 

Veterans United
LEARN MORE

at Veterans United

Min. credit score

620

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for military-connected customers looking to refinance. Veterans United's streamline VA refis require a lot less paperwork with lower closing costs.

 

SunTrust
LEARN MORE

at SunTrust

Min. credit score

620

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for the homeowner who wants to refinance, but needs help figuring out which type of mortgage to choose. SunTrust offers a broad range of loan types, including FHA, VA, USDA and conventional mortgages.

 

Guaranteed Rate
READ REVIEW

at NerdWallet

Min. credit score

620

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for homeowners who are looking to refinance into conventional, FHA or VA mortgages. Guaranteed Rate works with almost anyone with a good credit score and stable income.

 

 See current cash-out refi rates

Chase
LEARN MORE

at Chase

Min. credit score

620

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for refinancing any way you want: in person, online or over the phone. With branch locations in 22 states, Chase has a strong face-to-face presence, but refinancers can apply through other channels, too.

 

Bank of America
LEARN MORE

at Bank of America

Min. credit score

620

National/regional

National

NerdWallet rating
 
Why we like it

Ideal for borrowers who like options. Bank of America offers multiple refinance loans, including FHA, VA and cash-out.

 

Connexus
LEARN MORE

at Connexus

Min. credit score

600

National / regional

National

NerdWallet rating
 
Why we like it

Ideal for homeowners who want to refinance their mortgages in any state but Alaska and Hawaii. Connexus aims to make the application process as seamless as possible through its online portal.

 

Alliant
LEARN MORE

at Alliant

Min credit score

NA

National / Regional

National

NerdWallet rating
 
Why we like it

Ideal for borrowers who like to save money. Through Alliant's Advantage Mortgage (AAM) program, borrowers may be able to refinance and eliminate mortgage insurance with just 5% equity.

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Should You ‘Restart’ Your 30-Year Mortgage When You Refinance?

A cash-out refinance is best for home improvements and when you can lower your interest rate. Be careful using it to pay off credit cards; you're putting your home at risk.
 
we adhere to strict standards of editorial integrity to help you make decisions with confidence. Many or all of the products featured here are from our partners. Here’s how we make money.

IN THIS ARTICLE:
What is a cash-out refinance?
Pros of a cash-out refinance
Cons of a cash-out refinance
The bottom line

What is a cash-out refinance?

A cash-out refinance replaces your existing mortgage with a new home loan for more than you owe on your house. The difference goes to you in cash and you can spend it on home improvements, debt consolidation or other financial needs. You must have equity built up in your house to use a cash-out refinance.

Traditional refinancing, in contrast, replaces your existing mortgage with a new one for the same balance. Here’s how a cash-out refinance works:

  • Pays difference of your mortgage balance and home’s value.
  • Has slightly higher interest rates due to a higher loan amount.
  • Limits cash-out amounts to 80% to 90% of your home’s equity.

In other words, you can’t pull out 100% of your home’s equity these days. If your home is valued at $200,000 and your mortgage balance is $100,000, you have $100,000 of equity in your home. Let’s say you want to spend $50,000 on renovations. You can refinance your loan for $150,000, and receive $50,000 in cash at closing.

 

The pros of a cash-out refinance

Lower interest rates: A mortgage refinance typically offers a lower interest rate than a home equity line of credit (HELOC) or a home equity loan (HEL).

A cash-out refinance might give you a lower interest rate if you originally bought your home when mortgage rates were much higher. For example, if you bought in 2000, the average mortgage rate was about 9%. Today, it’s considerably lower. But if you only want to lock in a lower interest rate on your mortgage and don’t need the cash, regular refinancing makes more sense.

Debt consolidation: Using the money from a cash-out refinance to pay off high-interest credit cards could save you thousands of dollars in interest.

Higher credit score: Paying off your credit cards in full with a cash-out refinance can improve your credit score by reducing your credit utilization ratio — the amount of available credit you’re using.

Tax deductions: Unlike credit card interest, mortgage interest payments are tax deductible. That means a cash-out refinance could reduce your taxable income and land you a bigger tax refund.

The cons

Foreclosure risk: Because your home is the collateral for any kind of mortgage, you risk losing it if you can’t make the payments.

New terms: Your new mortgage will have different terms than your original loan. Double check your interest rate and fees before you agree to the new terms.

If you’re doing a cash-out refinance to pay off credit card debt, avoid running up your cards again.

Closing costs: You’ll pay closing costs for a cash-out refinance, as you would with any refinance. Closing costs are typically 3% to 6% of the mortgage — that’s $6,000 to $10,000 for a $200,000 loan. Make sure your potential savings are worth the cost.

Private mortgage insurance: If you borrow more than 80% of your home’s value, you’ll have to pay private mortgage insurance. For example, if you have a mortgage of $100,000 on a home valued at $200,000 and do a cash-out refinance for $160,000, you’ll probably have to pay PMI on the new mortgage. PMI typically costs from 0.05% to 1% of your loan amount each year. A PMI of 1% on an $180,000 mortgage would cost $1,800 per year (read more about PMI here).

Enabling bad habits: If you’re doing a cash-out refinance to pay off credit card debt, you’re freeing up your credit limit. Avoid falling back into bad habits and running up your cards again.

The bottom line

A cash-out refinance can make sense if you can get a good interest rate on the new loan and have a good use for the money. But seeking a refinance to fund vacations or a new car isn’t a good idea, because you’ll have little to no return on your money. On the other hand, using the money to fund a home renovationor consolidate debt can rebuild the equity you’re taking out or help you get on a sounder financial footing.

Just remember that you’re using your home as collateral for a cash-out refinance — so it’s important to make payments on your new loan on time and in full.

See current cash-out refi rates
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When an Extended Car Warranty Is Worth It

 

 In our survey, only about half of people who bought an extended warranty for a used car filed a claim

Most new- and used-car dealers offer customers a free, limited warranty that covers a car for the first 60 to 90 days of ownership. In fact, some states require a minimum warranty period on any used car sold by a dealership.

Yet relatively few problems arise during that time period. That’s why dealers and third-party companies offer customers an extended warranty.

Think of it as repair insurance once the manufacturer’s warranty has expired. With such coverage, used-car owners reported paying a median of $1,000 for future service work they may never need if the car is reliable. But if hit by an expensive doozy of a problem—such as a busted camshaft or a blown head gasket—car owners may be glad they have an extended warranty. That is if the warranty company pays the claim.

Consumer Reports has discouraged consumers from purchasing an extended warranty for a number of products, including cars. Why? It’s rare that the premium you pay will equal the amount of a paid repair claim down the line.

On the flip side, it’s just as rare to find a used car that has a confirmed history and all maintenance and repair receipts since it was new. And Consumer Reports has found that vehicle-history firms like Carfax and AutoCheck don’t catch all of the accidents that cars may have been involved in, especially if no insurance paperwork for the accident was filed or if a salvage history was “wiped.”


Learn why haggling for your next car really pays.
 

Wasted Money?

According to our survey, only about half of those who purchased an extended warranty for a used car from the model year 2000 or later actually filed a claim over the past five years. That’s a lot of money spent for peace of mind. But most of those who filed repair claims wound up relying on their extended warranty multiple times.

About 30 percent of used-car purchasers who had owned their car for a year or less and purchased an extended warranty to cover it needed to use that warranty in the first year of ownership.

But two-thirds of drivers needed that additional coverage in years two through five of ownership.

And while the extended-warranty industry has taken a bad rap for not paying claims, 84 percent of used-car buyers who had to use their extended warranty said that all of their claims were honoured. And 82 percent of all extended-warranty buyers said they would consider getting one again.

That said, we suggest setting aside the money you would spend on a warranty premium for a rainy-day repair instead.

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