What Is a Cash-Out Refinance?
A cash-out refinance is not so much a loan product as a financial strategy. Read on to learn if it’s right for your situation and goals.
% of homeowners who did home improvements spent $1,000 or more
A cash-out refinance is when a loan is taken out on a property already owned, with a loan amount that is larger than the current loan payoff (plus the costs of the transaction). You are able to do this by liquidating the equity you have in your home.
For example, if you owe $80,000 on your current loan and your home is worth $200,000, you have $120,000 in equity. Now, you are not able to liquidate all of that as most programs have a maximum amount of your loan’s value that you can take out. In this scenario, if you wanted to purchase a boat for $25,000, you could utilize the $120,000 in equity that you have and add the amount you would need to purchase the boat, plus closing costs.
This can be a good strategy if the terms of the new mortgage are better than the old mortgage. If interest rates drop, or if the mortgage is for a shorter term (10 years as opposed to 30 years), this may be an intelligent use of credit. However, it is important to note that you still have to pay closing costs when you refinance.
What Are The Benefits?
The benefits of a cash-out refinance, under the right circumstances, may be that the cost of credit could be less than other forms of credit on the market, like credit cards or other types of loans. Many people use a cash-out refinance for home improvement projects, for debt consolidation, or to buy out the equity of a co-owner.
What Are The Eligibility Requirements?
You must have sufficient income and credit history to qualify, but one of our licensed loan officers can talk with you to determine if a cash-out refinance is right for you.