Fact 2. Cash received from a Cash-Out Refinance can be used for a variety of reasons.
The cash can be used to consolidate debt. You can also use the money for a variety of other reasons. As an example, you could use the cash as a down payment on a second home that you could use as a rental property or even a vacation home. You can use the cash toward college tuition — either for you or your kids. Another option is to use the money for much-needed home improvements that you have been ignoring for way too long.
But, homeowners do need to be very mindful when tapping equity for cash. Any equity you tap is less equity or ownership you have in your house.
Fact 3. There are several important factors for qualifying for a Cash-Out Refinance.
First, homeowners need to have a decent FICO score. Homeowners with better credit scores may receive a lower rate for their new cash-out refinance.
Second, homeowners need to be in their home for at least a year to consider applying for a cash-out mortgage. The home may not be for sale during the time of application for the new loan.
And third, as mentioned earlier, homeowners need to have sufficient loan-to-value ratio.
Fact 4: There are costs associated with a Cash-Out Refinance.
Homeowners may need to pay closing costs for their new cash-out home loan. The closing costs vary by lender. Be sure to check with your lender about the details.
Fact 5: There may be tax benefits and other financial benefits for consolidating non-mortgage debt through a Cash-Out Refinance.
Mortgage debt might be tax-deductible. Credit card debt is not.
Besides tax benefits, cash-out refinance rates may be lower than the rates of some credit cards. This is another reason why some use a cash-out refinance to consolidate debt. By consolidating non-mortgage debt, you could save money every month!