If you aren’t sure what a mortgage cash-out refinance is or if it’s right for you, you’ve come to the right blog!
What’s a cash-out refinance?
A “cash-out refi” is when a current mortgage is replaced with a new mortgage of a higher value and the difference is given to you in cash. How much cash will you get? That depends on the amount of equity you have.
Equity is the difference between your home’s current market value and your mortgage balance. This value goes up as you pay off the principal you owe and/or when real estate economic factors improve to make your home’s value increase. More equity = more cash out.
Now that you know what a cash-out refinance is, let’s see if it applies to you!
Do I qualify for a Cash-out refinance?
First, ask yourself:
- Have you built up some home equity?
- Is your credit score above 620?
- Are you currently employed?
If you answered yes to those simple questions, you very likely qualify. Let’s dig into what a cash-out refi is and how you can profit from it.
So how is cash-out refinancing profitable?
A cash-out refi is more profitable than a Home Equity Loan because…
- It carries a lower interest rate and
- You don’t take a second mortgage on top of your current mortgage. You replace your current mortgage with a new one, ideally with a lower interest rate than you currently are paying.
Current interest rates are at all time lows right now. Most people who bought a home a year or more ago will find that today’s rates would allow them to shorten their loan length and/or take cash out when they refinance. In many cases, the monthly payments are actually less that what they are paying now. Check out our handy Refinance Calculator!
3 Ways You Profit From the Cash You Take Out
You can do anything with the cash you get! However, here’s how you can profit in the long-term:
1. The 2 Surprising Benefits of Home Renovations
To renovate your home is to invest in your home. A run-down home loses value. Renovations and major repairs increase your home’s market value thus increasing your equity.
You can benefit from a mortgage interest deduction when you use the money to substantially improve your home.
2. College Funds and Retirement Savings
A dollar saved is a dollar earned. It’s even better if your money is bringing in more money. You can profit from the power of compound interest by investing in college funds or retirement savings plans.
3. How You Can Reduce Credit Card Debt, Achieve Debt Consolidation and Enjoy Higher Credit Scores
A cash-out refi has a big advantage over credit card debt: a lower interest rate. Some credit cards charge as much as 22% interest, whereas mortgage rates are at all-time lows right now.
When faced with a situation where your credit card interest rate is high, you could save hundreds – if not thousands – of dollars by using the cash-out portion to pay off your balances and shift to mortgage debt. As an extra bonus, this consolidates your debt into a single monthly payment rather than paying several creditors.
Furthermore, paying off your credit debt improves your credit score by reducing your credit utilization ratio.
Educating yourself about your options, empowers you to make better decisions. Cash-out refinancing can benefit many people today. To find out if it’s right for you, our friendly Loan Advisors are always available help. Just drop us a note below and tell us how you prefer to be contacted.
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Learn more about the mortgage process here.
** It’s always a good idea to consult a financial advisor before taking out a new loan. They can help you determine if the benefits outweigh the costs of cash-out refinancing in your particular situation.