Most homeowners want to know if cash-out refinance is a good idea. So, what is cash-out refinance? Cash-out refinance is a mortgage refinancing option that enables you to substitute your current home mortgage with another higher and more significant amount.
Through cash-out refinancing, you can reduce your monthly mortgage payments, secure a lower interest rate, agree on the periodic loan terms and access the difference between your old mortgage loan and the more significant amount of the new loan in cash. The money can cater to other needs like renovations, college tuition, home modeling, and other financial needs.
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Cash-out refinancing and regular refinancing of a mortgage follow the same process, and this process is also known as rate-and-term refinance. This is when you can replace your old loan with a new one but for a shorter loan term and a lower interest rate.
However, with cash out refinancing, you can get a higher portion of your home’s equity. Hence, your new mortgage loan will be bigger- equal to the equity you want to withdraw.
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Is a cash-out refinance right for you?
Cash-out refinances are one of the best move any house owner can take. Mortgage rates increase every time. However, the collateral used in cash-out refinance(your home) signifies that the lender is taking a risk but can still afford the refinance rate. This means that cash-out refinancing remains one of the best ways to solve significant problems and expenses. Most of the time, homeowners use the proceeds from the cash-out refinancing to sort out the following expenses:
- Home improvement projects:
Most homeowners use what they get from a cash-out refinance to make repairs and renovations to improve the general outlook of their homes. Homeowners that do such can subtract the mortgage interest from their taxes if this project increases the value of the house’s worth.
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- Investment purposes:
Through cash-out refinance, homeowners can make investments like buying landed properties or use them to build up their retirement savings.
- High-interest debt consolidation:
Refinance rates are not usually as high as other forms of debt like credit cards. The proceeds from a cash-out refinance ensure you can repay the loan with one lower-cost monthly payment.
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- Child’s college education:
Prioritizing education is essential, yet education can be costly. That’s why most homeowners use their home equity to fund their children’s college, and this is a good idea if the refinance rate is lower than the student loan rate.
Benefits of cash-out refinancing
Below are some of the advantages of cash-out refinancing:
- You can lower your interest rate:
Most people go into cash-out refinance due to the low-interest rate. The interest rate is not as high as a standard mortgage loan, even when taking a bigger loan.
- You can take advantage of tax deductions:
You can use the returns from your cash-out refinancing to upgrade and renovate your house. And if it’s up to IRS eligibility standards, you can be a beneficiary of interest deduction when it’s time to pay tax.
Our team is ready to help you if you want a cash-out to refinance. We can help you get the lowest interest rate for cash-out loans.