10/18/2021
If you want to tap into your home equity, a cash-out refinance is worth considering.
Cash-out refinancing lets you take out a new mortgage for more than you owe on your existing one — and keep the difference in cash. The amount you may qualify for depends in part on how much equity you have in your home.
You might use the money to invest in home improvements, consolidate high-interest debts or pay for other pressing needs such as college tuition.
A traditional mortgage refinance and cash-out refi both involve taking out a new loan to pay off your existing mortgage. With a traditional refinance, you borrow about the same amount as you currently owe and try to get a lower interest rate, different term or both.
Your interest rate and term could also change with a cash-out refi, but the idea is to borrow more than you currently owe and use the extra cash for something else.
If you’re just looking to lower your interest rate, a traditional refi may be the better option because it tends to have lower rates than a cash-out refi.
Generally, the maximum is 80% of your loan-to-value ratio, or LTV. For example, if your home is worth $100,000, you may only be able to borrow a total loan amount of $80,000.
To qualify for a cash-out refinance, you’ll generally need to get your home appraised. The appraisal value may impact how much money you can take out, as it determines the home’s value for the loan-to-value ratio.
Pros of a cash-out refinance
If you’ve accumulated equity in your home, it makes sense that you want to tap into it to achieve another financial goal. Here are some situations when you might want to consider a cash-out refinance.
· Consolidate higher-interest debts — A potential good use of a cash-out refi is to consolidate high-interest debt, such as credit card debt and personal loans. There’s also a potential tax benefit as mortgage interest may be tax-deductible, while interest on personal loans, credit cards and auto loans often isn’t..
· Pay for higher education — If you have a college-aged child, using a cash-out refi could be a good alternative to taking out private student loans, which might have a higher interest rate.
· Make home improvements or repairs — Using the money to remodel or expand part of your home, or for critical maintenance, could pay for itself by raising the home’s value.
Please feel free to reach out to me and I can research potential Cash Out Refinance options, and analyze your particular situation to determine what option would fit you best.
