Is A Cash Out Refinance a Good Idea?

What is a cash out refinance? Cash-out refinances replace your current home mortgage with another mortgage with a higher amount. This enables you to access the difference between your existing mortgage loan and the larger amount of the new loan in cash. The cash amount is based on the equity you’ve accrued over time in your home. The money can take care of home modeling, renovations, college tuition, and other financial needs.

The process for a cash-out refinances is the same as that of a regular refinance of a mortgage (also known as a rate-and-term refinance), in which you replace your current loan with a new one. But for a shorter loan term or at a lower interest rate, or both. 

Although with cash-out refinancing, you can access a large portion of your home’s equity. So your new mortgage loan will be higher – with an equivalent amount to the equity you’re withdrawing.

Is a cash out refinance right for you?

Cash out refinance is a good choice anyone can make. Mortgage rates are ever-increasing, yet the collateral involved in a cash-out refinance (your home) means that the lender takes on a small risk and can still afford the refinance rate. That means that cash-out refinancing is one of the cheapest ways to sort out significant expenses. Most homeowners use what they get from cash-out refinancing for the following purposes:

  • Home improvement projects:

Most owners use their proceeds from a cash out refinance to upgrade and improve their homes. These people can minus the mortgage interest from their taxes if this project significantly increases the house’s worth.

  • Investment purposes: 

Cash-out refinances homeowners’ access to funds to help them make investments, buy a property or build their retirement savings.

  • High-interest debt consolidation:

Refinance rates are mostly lower than other forms of debt like credit cards. The returns from a cash-out refinance enable you to repay the debts and repay the loan with one lower-cost monthly payment.

  • Child’s college education: 

Acquiring education is costly, so using home equity to pay for your child’s college is reasonable if the refinance rate is not higher than the student loan rate.

Benefits of a cash out refinance 

Below are some of the advantages of cash out refinancing:

  1. You can lower your interest rate: 

Lower Interest rate is probably the most common reason most people refinance. You can pay as little interest as possible, even when taking on a bigger loan.

  1. Your cost to borrow could be lower: 

Cash out refinancing is often an affordable form of financing because most mortgage refinances rates are usually lower than rates on personal loans or credit cards. Even with closing costs, this can be very beneficial when you need a large amount of money.

  1. You can take advantage of tax deductions: 

You can use the proceeds from your cash out refinancing for home improvements, and if it meets IRS eligibility standards, you could benefit from the interest deduction at tax time.

We have a team ready to help you through the cash out refinancing process. We can help you get cash-out loans at the lowest rate.