Could a Cash-Out Refinance Help You?
One of the largest investments of your life is likely going to be the home you own. Technically, your residence or place where you live is not considered an investment yet we all check the value of our residence periodically. And wouldn’t you like all that money you pay out each month to b less or even take some of it back?
That is when you may be asking yourself if you should refinance. Some homeowners may be having difficulties to come up with the mortgage each month due to a high interest rate while others have little trouble attempting to pay off their mortgage earlier than its due or want to take some cash out of their home equity. There are various reasons to refinance by homeowners.
What is a Cash-Out Refinance?
A cash-out refinance enables you to increase your loan balance and payoff your existing loan. This means your new loan will payoff the old one and have a higher loan balance.
How does a Cash-Out Refinance work?
If you wish to apply for a cash-out refinance loan, you must have equity in your home that’s typically from improvements or appreciation over the years. Prior to taking this path, you have to look at a few factors.
• You are going to owe more money which means you may be paying more interest over time.
• It is quite common for lenders to limit how much cash you can access with a cash-out refinance loan than for a regular refinance or purchase loan transaction.
Benefits of doing a Cash-Out Refinance
Lower interest rates: You may qualify for a lower interest rate on your loan than you currently have. Your monthly payment can be lower with just a small percentage decrease.
• Debt consolidation: A cash-out refinance can help homeowners who have credit card debts with interest rates in the teens or higher can manage their finances better by consolidating it into one monthly payment.
• Home improvement projects and repairs: Many homeowners who have lived in their homes for seven or more years want to make some modern improvements to their residence. It could be updating your kitchen, making an open floor plan by removing a wall or two, or changing the flooring, or making it more eco-friendly.
• Tax write-offs: If you use the cash to upgrade your home you may qualify for a mortgage interest deduction on your taxes
• New vehicle: You might do a mortgage cash-out refinance to purchase a car or truck. Typically auto loans are 5-to 8 years whereas a mortgage is amortized over 15- to 30- years so the payment will be lower. You might get a better deal than if you had to get a loan specifically for your vehicle.
• College Tuition. You may be able to access the equity in your home to help with college expenses.
Is it a good idea to Cash-Out Refinance?
Just because you have equity in your home is not a reason to do a cash-out refinance. The following are some reasons to not refinance
Interest rates? It is pointless to refinance your home if your payments will still not be affordable.
Consolidating your debt and managing your spending habits better is a good reason to get a cash-out refinance. On the other hand, if you continue using your credit cards irresponsibly, you could end up once again with high-interest credit card debt in just a few years.
Thinking about a cash-out refinance?
If you are seriously considering a refinance on your home, don’t wait Contact us today. One of our licensed loan professionals will help you decide if refinancing is the best choice for you and your family.
We can review your refinance options using FHA streamline, VA cash-out refinance, as well as jumbo and conventional loans. We are happy to answer any questions that you may have about the process.
Scott is a Business Development Manager at 1stNWM. He blogs about home loans, personal finance and lives in Orange County, CA. He feels good about sharing his expertise and real world stories of successful real estate transactions. when he’s not at work, he is with his bestie, a four-legged furry and often sloberring Saint Bernard, Wyatt.