Is it time for a cash out refinance?
- 2 min
What you'll learn.
- what is a cash out refinance
- how to qualify for a cash out refinance
- how to spend your cash out refinance
As your mortgage matures, you gain equity within your home. Equity is the portion of the home’s value that you actually own from paying your mortgage down over the years. A cash-out refinance will replace your existing mortgage with a loan that’s more than you own on your home.
The money goes to you in cash and most people do this so that they can use that cash towards different things like:
Paying off debt
Paying for your kids’ tuition
Improvements around the house
Taking that dream vacation
Extra money in your pocket
Cash-out refinances pays you a portion of the difference between the mortgage balance and the home’s value. These kinds of refi’s sometimes have a higher interest rate since you’re tied into a higher loan amount. But, you’re able to get 80% to 90% of your home’s equity. So, the longer you’re in your home – the better equity you’ve built and therefore more cash.
Break it down
Let’s say that your home is valued at $400,000 and your mortgage balance is at $300,000, you have $100,000 equity in your humble abode. You can refinance your $300,000 loan balance for $350,000 and receive $50,000 in cash from your lender.
If you’re interested in making this type of financial decision, now is a great time. A cash-out refinance might give you a lower interest rate if you bought when rates were higher. However, keep in mind that you will be replacing your original mortgage with a new loan with new terms, which may mean your monthly payments will be different and that your new loan may take longer to pay off. Being strategic about a cash-out refinance will help leverage you and your pockets.
Each loan program has different eligibility requirements for cash-out refinances, so make sure you meet with a mortgage banker to discuss the best options for your individual financial situation.
What you can expect
Just like a typical refinance, you will be expected to pay closing costs – just set yourself in a position where you know how much you might have to pay. Keep in mind you will not get your cash immediately, similarly to when you buy a home your cash-out refinance will need to go through the underwriting and appraisal process. Typically, you will not get your cash until 3-5 days after closing.
At the end of the day a cash-out refinance could really benefit you and your family. If you have a decent amount of equity in your home and you’re looking for some financial help, get in touch with one of our mortgage bankers today!
Information is for educational purposes only and should not be relied upon by you. By refinancing your existing loan, your total finance charges may be higher over the life of the loan. Other loan program restrictions may apply. All loans subject to income verification, credit approval and property appraisal.