Cash Out Refinance
Cash Out Refinancing allows a homeowner to pull equity from their home. This means more cash available to the homeowner. There are specific guidelines in what is allowed for a Cash Out Refinance. Cash Out Refinances can be very useful to remodel a home, payoff debt, or pay for some of life’s other expenses.
Cash Out Refinances can be life changing. Over the last few years, we have seen a lot of appreciation in our homes across the country. This has helped many homeowners become more wealthy. However, equity can sometimes remain an untapped source of wealth. In order to tap into the equity in your home, a Cash Out Refinance may be a great option.
Cash Out Refinance vs HELOC vs Rate and Term Refinance
A Cash Out Refinance is different from a standard “Rate and Term Refinance” and different from a HELOC (Home Equity Line of Credit). Cash out refinances allow a homeowner to pull the equity out of their home up to 80% LTV (Loan-to-Value). The terms of the loan can be reduced or expanded based on your goals. Cash Out Refinances are also subject to current interest rates.
You may qualify for a Cash Out Refinance if you have your home paid off or if you have a current mortgage on your home. You do need to have equity in your home to qualify for a Cash Out Refinance. So if you purchased within the last year with a low down payment, you may not qualify at this moment. A cash out refinance is an excellent option if you are wanting to do some home improvement projects. The interest rate can be fixed and you can continue to have peace of mind knowing that your interest rate and payment will not increase. A balloon payment will not be required either. Variable rates, balloon payments, and increased payments are all common characteristics of a HELOC.
Rate and Term Refinances allow you to adjust your interest rate and your terms. This can result in higher or lower monthly payments depending on how this type of refinance is structured. Some borrowers may like to reduce their term, which may result in a higher payment, and others will extend their term to reduce their monthly payment. You have the opportunity to customize the loan according to your goals and financial strategy.
There are rules that prohibit more than $2,000 of equity being taken out on a standard Rate and Term Refinance. Interest rates are often a little lower on a Rate and Term Refinance compared to a Cash Out Refinance because a Cash Out Refinancing is viewed as higher risk. However, the difference may be minimal depending on your LTV and credit scores.
Benefits of Cash Out Refinancing
Cash Out Refinances can be life changing. I have seen scenarios when clients paid off nuisance high interest rate debts. The homeowner’s equity allowed the clients to save over a thousand dollars in monthly expenses. I love to see the sense of relief this brings to my clients in similar scenarios. It may allow you to reset your debts with an overall lower interest rate too.
I have also seen scenarios where clients wanted to remodel or update their homes. In many cases it becomes a necessary part of homeownership, but those expenses can be hard to pay for out of monthly income for many homeowners. A Cash Out Refinance allowed these clients to pay for the remodel and allowed them to have some nicer updates in their homes. It’s so awesome to see how happy these clients are and I love being invited to see their updates! Life changing!
Is a Cash Out Refinance right for you?
Learning if a Cash Out Refinance would benefit you would start with contacting us. We will review your goals and finances to help you determine what the pros and cons would be to Cash Out Refinancing. Everyone has a different scenario and different goals so it’s important to talk with your trusted mortgage advisor to let you know your options. If you feel a Cash Out Refinance is your best option, CLICK HERE TO APPLY!