Home Loan Programs

5 Reasons For Using a Cash-out Refinance

Home_Author

By Easy Home Loans Expert

U.S. Homeowners are currently in one of the most competitive housing markets in history. With rising home prices and mortgage rates now at historic lows, many homeowners are putting the equity they’ve built in their home to good use through a cash-out refinance.

What is a cash-out refinance?

A cash-out refinance, or cash-out refi, allows you to convert the equity you’ve built in your home into cash. This type of loan involves taking out a new mortgage to pay off your current loan balance, plus additional funds you can use at your discretion.
Your new mortgage balance will be higher, and consequently, so will your loan-to-value ratio (LTV). Although taking on a higher loan balance may sound counter-intuitive, the freed up cash can be used in several ways to benefit your finances.
If you’re trying to figure out the most financially prudent strategy to use the proceeds from a cash-out refinance, the following five strategies might give you some clarity.

1. Make improvements to your home

Using a cash-out refinance to fund a home improvement project is an excellent strategy to increase the value of your home. But renovations can be costly, especially if you encounter any unexpected expenses. According to Home Advisor, your total project cost will vary depending on the type of addition, materials used, labor and location of the job. It can cost as little as $5,600 and as much as $125,000 or more.

2. Pay off debt

High-interest debt is the worst and adds up fast. A recent Northwestern Mutual Study reported that one in five Americans allocates anywhere from 50%-100% of their income towards debt repayment. If you’re drowning in consumer debt, auto or student loans, a cash-out refinance can combine multiple revolving balances and installment loans into one low monthly payment at a lower interest rate.

3. Get a more competitive interest rate

A cash-out refi can save you money by delivering an overall reduced interest rate compared to a HELOC or home equity loan. Also, interest rates on mortgages are typically much lower compared to credit cards and personal loans. The good news for borrowers today is that the market is experiencing some of the lowest rates in decades.

4. Grow your real estate portfolio

Using a cash-out refinance to purchase a second home or vacation home is a great investment strategy for building long-term wealth. With as little as 10 percent down, you can buy a vacation spot for your family.

5. Tax deductions

If the money is used to buy, build, or substantially improve your home, the mortgage interest deduction may be available on a cash-out refinance. Also, if you itemize your deductions, you can deduct the interest on up to $750,000 or $1 million in mortgage debt, depending on your tax filing status and when you bought your house.

Things to know:

  • Refinancing a regular mortgage means you will pay closing costs, although they can often be rolled into your new mortgage.
  • Cash-out refinancing replaces your current mortgage with a new mortgage, which may carry different terms, including different monthly payments and higher interest rates.
  • Home equity loans are second mortgages that must be paid concurrently or consecutively with your current mortgage; check with your lender – this can be the best option if you have an excellent rate on your current mortgage and you don’t want to lose that in a refinance.

Creating an option-assessment list with your licensed lending officer is recommended so you can get all the information as basic dollar amounts and see how it will fit into your budget.

Want to find out if a cash-out refi is right for you? Learn more about locking in your financial future from a loanDepot licensed loan officer.

Home Loan Programs

5 Reasons For Using a Cash-out Refinance

Home_Author

By Easy Home Loans Expert

Home_Author

By Easy Home Loans Expert

U.S. Homeowners are currently in one of the most competitive housing markets in history. With rising home prices and mortgage rates now at historic lows, many homeowners are putting the equity they’ve built in their home to good use through a cash-out refinance.

What is a cash-out refinance?

A cash-out refinance, or cash-out refi, allows you to convert the equity you’ve built in your home into cash. This type of loan involves taking out a new mortgage to pay off your current loan balance, plus additional funds you can use at your discretion.
Your new mortgage balance will be higher, and consequently, so will your loan-to-value ratio (LTV). Although taking on a higher loan balance may sound counter-intuitive, the freed up cash can be used in several ways to benefit your finances.
If you’re trying to figure out the most financially prudent strategy to use the proceeds from a cash-out refinance, the following five strategies might give you some clarity.

1. Make improvements to your home

Using a cash-out refinance to fund a home improvement project is an excellent strategy to increase the value of your home. But renovations can be costly, especially if you encounter any unexpected expenses. According to Home Advisor, your total project cost will vary depending on the type of addition, materials used, labor and location of the job. It can cost as little as $5,600 and as much as $125,000 or more.

2. Pay off debt

High-interest debt is the worst and adds up fast. A recent Northwestern Mutual Study reported that one in five Americans allocates anywhere from 50%-100% of their income towards debt repayment. If you’re drowning in consumer debt, auto or student loans, a cash-out refinance can combine multiple revolving balances and installment loans into one low monthly payment at a lower interest rate.

3. Get a more competitive interest rate

A cash-out refi can save you money by delivering an overall reduced interest rate compared to a HELOC or home equity loan. Also, interest rates on mortgages are typically much lower compared to credit cards and personal loans. The good news for borrowers today is that the market is experiencing some of the lowest rates in decades.

4. Grow your real estate portfolio

Using a cash-out refinance to purchase a second home or vacation home is a great investment strategy for building long-term wealth. With as little as 10 percent down, you can buy a vacation spot for your family.

5. Tax deductions

If the money is used to buy, build, or substantially improve your home, the mortgage interest deduction may be available on a cash-out refinance. Also, if you itemize your deductions, you can deduct the interest on up to $750,000 or $1 million in mortgage debt, depending on your tax filing status and when you bought your house.

Things to know:

  • Refinancing a regular mortgage means you will pay closing costs, although they can often be rolled into your new mortgage.
  • Cash-out refinancing replaces your current mortgage with a new mortgage, which may carry different terms, including different monthly payments and higher interest rates.
  • Home equity loans are second mortgages that must be paid concurrently or consecutively with your current mortgage; check with your lender – this can be the best option if you have an excellent rate on your current mortgage and you don’t want to lose that in a refinance.

Creating an option-assessment list with your licensed lending officer is recommended so you can get all the information as basic dollar amounts and see how it will fit into your budget.

Want to find out if a cash-out refi is right for you? Learn more about locking in your financial future from a loanDepot licensed loan officer.

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