Although there are definitely benefits to cash-out mortgage refinancing there are some risks that homeowners should know.
- Inaccurate Appraisals - When taking out a cash-out mortgage refinance there is a risk that your home appraisal may be higher than its true value. If you enter into a cash-out refinance loan based on an inflated appraisal you could find yourself with an upside down mortgage, owing more than the house is worth.
- Increased Monthly Mortgage - A cash-out refinance may leave you with a higher monthly mortgage payment.
- Temptation To Spend - Since a cash-out refinance (when used to pay off credit card debt ) effectively brings your credit card balances to $0, you may end up racking up more debt if you have not curbed your spending habits.
On the last point, many people see cash-out refinance as a quick fix for their debt woes; but if you do not get the root of your financial problems you could end up with even more debt on your hands. Remember to only use your credit card in an emergency and pay off the balance immediately.