Is Cash-Out Home Refinance Right For You?

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What Is A Cash-Out Home Refinance

Is a Cash-Out Home Refinance Right For You?

A Cash-out home refinance mortgage is designed to allow you to convert the equity you have in your home into cash for specific purposes. Many of the same lenders or loan guarantors that back rate and term refinance mortgages also offer cash-out refinance mortgages for eligible qualified borrowers. Because the risk to a lender is higher with this type of mortgage, the interest rate may be slightly higher than the interest rate on a rate and term refinance. But when your need for money is higher than the balance of your savings account, a rate and term refinance may give you the relief you need.

Types of cash-out refinances are organized by the purpose of the loan proceeds you receive. A debt consolidation mortgage uses the proceeds of the loan to pay off some or all your consumer debt to help reduce your monthly payments and give you an easier cash flow on a daily basis. The thing to remember in a debt consolidation refinance is that you will need to be careful not to charge credit cards back up, making your new payments even higher. Another Cash-out refinance can be used to pay off car or student loans. Car loans have short repayment periods, or terms, that push the monthly payments higher. Sometimes you really need to roll that car payment into a longer term, like a mortgage loan, to buy yourself time to get back on your feet after a drop in income or after an unexpected expense. Panning to go to college this year? Maybe your kid’s going to college and you spent the college fund during the recession? FHA’s cash-out specifically allows the funds to be used for college tuition. And the all-time favorite may be cash-out home improvement refinance. This type of cash-out varies widely depending on the loan program, but can be used to improve safety, security or energy efficiency of your home.

Cash-out refinances result in higher loan values than your previous mortgage had, depending on the amount of cash you pulled out. Cash-out home improvement loans can allow your property to increase in value, resulting in stable or increased equity in your home.

Cash Out Home Refinance Options:

Cash Out Debt Consolidation

If you don’t think your property meets guidelines for FHA or USDA loans and if you’re not eligible for a Veteran Administration guaranteed mortgage, there are more refinance loan programs better suited for you. Lenders now offer both conforming (Fannie Mae or Freddie Mac) and non-conforming (private lenders) cash out loans for debt consolidation. These loans allow you to refinance your existing mortgage for a larger loan, using the proceeds (cash out of loan) to pay off existing debt. Sometimes, to make sure the new loan is beneficial to you, the lender will pay off debt directly out of the loan, eliminating those payments immediately. To protect yourself, you will need to avoid putting new charges on any cards paid through the mortgage refinance.

Cash Out Home Improvement

If you want to do a small-scale home improvement yourself but need cash for cash-outlies, consider a cash out mortgage that is designed for allowing you to use your loan for home improvement.

Home Refinance Options, Refinance, Cash Out Refinance, Cash Out Home Refinance
Home Refinance Options, Refinance, Cash Out Refinance, Cash Out Home Refinance

Home Equity Loan

A home equity loan is a second mortgage placed on your existing first mortgage. Home equity loans are used when your first mortgage terms are great but just need a relatively small amount of additional funds for:

  • Home Improvement or repairs, or
  • College for you or your kids, or
  • An unexpected need for money – such as a death in the family, lawsuit, car breakdown or another financial emergency that is a temporary cash need.
  • Other – you get the idea. Keep in mind, that the money must be repaid, so make sure you can afford the additional payments

Home Equity loan amounts are based on the difference between your first mortgage balance and the current value of your home. This is also known as the equity in your home, which is where the loan got its name.

Home Equity Line Of Credit

A Home Equity Line of Credit, or HELOC, starts out with a limit, but a $0 balance. As you use the funds, the balance grows, and you pay interest only on the balance. It is more flexible than a home equity loan, but usually, the interest rate is adjustable too. Some homeowners like this option for home improvements, so they pay only on what is used but have the option of taking out more if needed.

Shorten Your Mortgage Term and Save Interest

1. Free Consultation

Speak to our friendly loan originators who are licensed and ready to help!

2. Discover Your Options

Talk to our loan originators and discover what options are available to you!

3. Get Your Refi

The final step is to submit all required documentation and then finalize your refinance
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