Cash-Out Refinance

Cash-Out Refinance

A cash-out refinance allows you to leverage your home’s equity by taking out a new mortgage for more than you currently owe, with the difference paid to you in cash. This option can provide funds for emergencies, expenses, or personal desires.

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Myth And Facts

Term or Rate Change
The Loss of Equity
Resetting Your Loan Term
Debt Consolidation

Term or Rate Change

Myth

Refinancing can only change my term or rate.

Fact

While your rate and term may change the timing of a cash-out refinance, the goal is to access the equity in your house by taking cash out. You may select the same term and will get the market rate.

The Loss of Equity

Myth

You’ll lose your equity.

Fact

Your home equity is only affected if you add to your loan principal, as you would during a cash-out refinance. The cash is accessed from the home equity you’ve earned so that equity will be lower based on the amount you take out.

Resetting Your Loan Term

Myth

You have to reset your loan term.

Fact

Depending on your chosen lender, you may not have to start your term over. It’s becoming more common for lenders to write custom loans with not-so-traditional terms.

Debt Consolidation

Myth

A cash-out refinance won’t let you consolidate debt.

Fact

The money you get from your cash-out can be used for many different things. Many people use these funds to update or renovate their homes. The money can also consolidate high-interest debts like credit cards and other loans.

30-Year Fixed-Rate Mortgages

Myth

A 30-year fixed-rate mortgage is always the best choice

Fact

If you can afford higher payments, you can own your home outright in less time and for less money with a 15-year fixed-rate mortgage.

What Is a Cash-Out Refinance?

A cash-out refinance is a refinancing option that converts your home equity into cash. By taking out a new mortgage larger than your existing loan balance, you receive the difference in cash. This approach allows you to access the equity built in your home for various financial needs.

How a Cash-Out Refinance Works

The process resembles a standard refinance where you replace your existing mortgage with a new one. In a cash-out refinance, you obtain a larger loan amount and receive a portion of your home’s equity as a lump sum. You’ll need to apply with a lender, provide necessary documentation, await approval, and complete the closing process. Note that this method may result in a higher loan amount and additional closing costs.

Reasons to Consider a Cash-Out Refinance

  1. Fund Home Improvements
    Use the equity in your home to finance renovations and upgrades, from repairing broken systems to enhancing design elements.

  2. Consolidate Debt
    Combine high-interest debt into a single mortgage with a lower interest rate, potentially saving on interest payments.

  3. Get a Lower Interest Rate
    Replace high-interest credit card debt with a lower mortgage rate, which can save you significant amounts over time.

  4. Free Up Money to Invest
    Access funds to invest in retirement savings or education, taking advantage of compound interest and future financial growth.

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