Are you interested in cash-out refinancing? Cash-out refinancing can be a great way to free up some money for anything from paying for college or financing a home improvement project, to building your savings. Before finalizing your decision, it’s important to understand precisely what cash-out refinancing is, the benefits of cash-out refinance, and what to be aware of when opting for refinancing.
What is Cash-Out Refinancing?
So, what exactly is cash-out refinancing? It’s the process of refinancing the mortgage on your home to use some of the equity you’ve earned over the years. For a cash-out refinance loan to work, the new mortgage loan needs to be larger than your original mortgage loan. That way, you can use the difference between the original and new mortgage loan.
Say you purchased a home five years ago for $150,000. Over the past five years, you have paid $50,000 off your loan. That means you now own $50,000 worth of your home and still owe $100,000. You can choose to refinance your mortgage for $150,000, meaning you would free up $50,000. By refinancing, you gain access to that cash now and continue to pay off your mortgage monthly. You have simply increased what you owe on your home over the years to acquire money now for your project or other financial needs.
3 Scenarios Where Home Refinance with Cash Out Makes Sense
1. Immediate access to cash
One of the main benefits of a cash-out refinance is that it can provide you with money that you can use immediately. This might be helpful for those who are looking to start a home remodel project or make an investment. You have worked hard to make payments on your mortgage over the years, increasing your home’s equity. Now you might be able to take advantage of that by refinancing your mortgage and gaining access to funds for other financial needs. Whether you’re seeking a small amount of money to purchase a used car or plan to use the money for more schooling, cash-out refinancing can be one of the options to acquire funding.
2. Ability to maintain or increase your home’s value
Why not use refinancing to increase your chances of ensuring your home’s value doesn’t decrease over the years? If you’re in need of some funding to start home improvement projects, cash-out refinancing could provide you with the money you need. Although this option extends the length of your mortgage, you could potentially increase your home’s value over time by making improvements. If you plan to sell your home at some point in the future, this option might pay off down the road. Make sure you’re prepared to handle any home improvement projects before refinancing your loan, though, so no money is wasted in the process.
3. Option to invest in your future
If you’re interested in a career change, want to head back to school, or need the funds to start your own business, it can be a time-consuming process trying to find the right loan. By opting for cash-out refinancing, you can gain access to the money you need by re-adjusting your mortgage. After doing some research, you may even find that cashback refinance is a more affordable option than turning to your credit card or searching for another type of loan.
What to Keep in Mind with Cash-Out Refinancing
While there are plenty of benefits to cash-out refinancing and some scenarios where this is the right choice, it is important to keep in mind how this option could affect you.
When you choose to cash-out refinance, you agree to a new mortgage plan. For example, you may have made plans to pay off your original mortgage by a certain date. If you re-adjust your plan, you should consider whether or not you have job security, savings, and the discipline to handle extending your mortgage. Contact a mortgage expert and learn about your options for a cash-out refinance.