FINANCIAL WELLNESS

3 min read

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Nov 2022

Pay Off Debt With a Cash-Out Refinance

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WHAT YOU'LL LEARN

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What’s a cash-out refinance?

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How can I apply?

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What do I need to apply?

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WHAT YOU'LL LEARN

check icon

What’s a cash-out refinance?

check icon

How can I apply?

check icon

What do I need to apply?

Debt is a struggle for millions of Americans. Families across the country struggle to stay ahead on car loans, student loans, and medical or credit card bills. Adding to and paying off debts might seem like a never-ending cycle, but a cash-out refinance can be a huge help!

What is a Cash-Out Refinance?

To refinance means to exchange your current mortgage for a new loan with all-new terms that’ll help save you more money in the long run. Refinances are popular among borrowers looking to lower their payments, rate, or shorten their loan’s term.

With cash-out refinances, you apply for an entirely new loan with a larger principal to replace your original mortgage and you pocket the difference at closing. The amount you receive depends on your equity, financial profile, and loan program, but regardless, you’ll get to take home the extra cash and put it toward other debts.

What Do I Need to Get Started?

Along with copies of your financial documents and funds for closing costs, around 3-5% of the new loan amount, you’ll need equityThe difference between what your home is worth and what you owe on your mortgage.equityThe difference between what your home is worth and what you owe on your mortgage. to qualify for a cash-out refinance. With every payment you make toward your mortgage’s principal, you gain equity.

Let’s say your home is worth $200,000, and you still owe $100,000. If your debt is $50,000 and you’ve got $100,000 in equity, you could refinance that $100,000 loan balance for $150,000 and get $50,000 in cash at closing!

Now you may be asking, why not take the whole $100,000? Remember, lenders typically require you to keep at least 20% of your equity in your home

To put it another way, you can't borrow more than 80% of your equity.

After the cash-out, you’d still need $40,000 in equity, meaning you can borrow $60,000 ($100,000 in equity - $40,000 required left over = $60,000) at most. But there are exceptions: with Department of Veterans Affairs loans, you might be able to borrow 100% of your equity with a VA cash-out refinance.

Also, we will likely – but not always - require an appraisal to determine your home’s current value. If home prices have gone up, you may be able to borrow more than you planned!

How Do I Apply?

Applying for a cash-out refinance is a lot like applying for your original loan. To start, you can refinance with us, or shop for another one. We will take your new loan through each stage of the loan process again. That means your new loan will go through underwriting and processing before it hits the closing table. After the appraisal (if necessary), you’ll close on the new loan and receive your funds.

The money won’t come immediately. In many cases, you’ll receive the funds around three to five days after closing.

Is a Cash-Out Refinance Right for Me?

Cash-out refinances aren’t for everyone. They can be riskier than a regular refinance because not only could you lose your home if you default, but you’re adding money to your mortgage, reducing your equity, and you’ll have to pay for all the upfront costs of lending over again.

That said, debt can have lifelong consequences if not addressed quickly. If you do your homework and understand the risks, a cash-out can be a better solution than ongoing, unsecured loans with double-digit interest rates.

When you’re ready to start your cash-out refinance, we’ll be ready to help. We’ll get you on track to pay off those pesky debts in no time!