Q: We are considering refinancing our mortgage to a new lower rate but also want to make some improvements to our home. Can we refinance and borrow money for the improvements under the same loan?

A: What you're proposing is called a cash-out refinance and it's tough to get one right now. They're expensive and lenders typically won't do them unless you have tons of equity in your property. If your property is worth just about what you owe, you probably won't qualify for a cash-out refinance, even if the loan will improve the value of your home.

You may ask, why are cash-out refinances hard to get these days? Well, it's because of the declining values of homes across the nation. Lets say the lender gives you an 80%+ cash-out refinance loan, but then, over the next several months your home decreases in value by 5% or more, even with improvements you made. Your loan to value ratio is now greater than 85%+.  With lower than optimal equity in your home (20% equity is optimal) your lender regards your loan as being high risk. This is the simple part, the higher the risk the higher the interest rate.

So what should you do? Well, consider the extra expense of the cash-out interest rate against just saving money. Take special care of your money and finances. Don't get me wrong, never stop dreaming but perhaps a refinance to save money is just what the doctor ordered for today.

Give us a call and we will help you "run the numbers" to see just what is affordable for you. Comments wanted!
marcia@minocquamortgage.com or www.minocquamortgage.com