May 20, 2020
Did you know that typically over time your home builds value? That value is referred to as your home’s equity and it is the difference between the current value of your home and the amount outstanding on your mortgage. You may be able to take advantage of this equity to pay for major expenses with a cash-out refinance.
A cash-out refinance is a method for you to tap into your home equity. You’ll refinance your existing mortgage into a new one for a larger amount and pocket the difference, minus closing costs. But, remember that you’ll be using your home as collateral so be sure that your new payments are affordable. These loans can come with a slightly higher interest rate because the lender is taking on more risk with the higher loan amount.
Typically, cash-out refinance loan amounts are limited to 80% of your home’s value, but some mortgage programs can go higher. If you’ve built up a large amount of equity in your home and want to use it to meet some of your financial goals, a cash-out refinance can be a good option.
Let’s take a look at the three most popular reasons borrowers decide to use a cash-out refinance.
Paying for College
Paying for college is no small feat. Refinancing your mortgage to help fund your child’s tuition is a popular option for its one-time cash return, but there may be some unexpected drawbacks too.
Financing a Home Addition or Renovation
Refinancing is often used to help fund home improvement projects. This trend is especially true when mortgage interest rates are so low, as other traditional forms of credit tend to carry higher interest rates.
Consolidating High-Interest Credit Card Debt
For some, being able to pay down credit card debt is a dream come true. A cash-out refinance could be a solution. Still, there are considerations you need to make before moving ahead.
With pros and cons for each option, making the right choice ultimately depends on your specific situation. But for many homeowners, a cash-out refinance offers a solid solution for funding these major expenses.
Interested and have more questions? Read here for more refinance information. You can also run some of your own refinance numbers with our refinance calculator.
Stay tuned to our NewRez articles for more helpful mortgage tips and information.