Are you in need of a little extra cash right now? Maybe you want to make some home improvements, consolidate your debt, or make a down payment on a vacation home. Whatever you need the money for, if you own your own home, you may already have the funds in your home equity. You just need to access them. Did you know that you can refinance your home to take equity out? This process is called a cash-out refinance. Read on to find out how you can make use of this type of home loan.
What Is a Cash-Out refinance?
Simply put, a cash-out refinance allows you to access your home equity; that is, the money you’ve already paid into your home through your monthly payments. In a cash-out refinance, your new loan is for more than what you owe on your home. The difference between your existing mortgage and the new loan is yours to use as you choose.
This can be a way to get access to more money without having to pay a potentially higher interest rate from a third party. Both credit cards and personal loans, for example, can have extremely high interest rates.
What Can You Use It For?
You can spend the money from a cash-out refinance any way you want, but some uses are considered better than others. A cash-out refinance is a secured loan, and your home is the collateral. If you don’t repay your mortgage, you could risk losing your house. Putting the money toward something that could improve your finances down the road is a great way to ensure you benefit fully from your cash-out refinance.
Home Improvement Projects
One of the best ways to use the money is to increase the value of your home. Pay for expensive repairs or invest in home improvements that make your home even better for you and your family. What you put into the home now to fix it up will be worth it as an investment if you plan to sell sometime in the future. A new roof, updated bathroom, or state-of-the-art kitchen could really pay off.
Invest in Your Future
When you refinance and take equity out, you can spend the money on more than just your current home. You can use the additional funds to pay off the education debt you have accrued, cover education costs for your children, or start a higher degree in your field. Note that this last option is only recommended if you will truly benefit from paying for continued education for your profession.
You can also use the money to cover the down payment on a second home or investment property. Make sure to do the math to determine if this is a feasible option for you.
Take Care of Business
Starting a small business or investing in one can be a challenge for most people. They don’t typically have the cash on hand to attempt this. With a cash-out refinance, however, it becomes possible. As with any venture, you should be advised that this is taking a risk as well since a high percentage of startups fail to keep up their momentum. The money you receive is still considered a loan and will need to be paid back in the future.
What Are the Benefits of a Cash-Out Refinance vs. Other Methods?
A cash-out refinance can give you access to a lot of money, up to tens of thousands of dollars. You can also potentially get tax benefits from this type of refinancing, particularly if you use it to improve your home significantly. Cash-out refinancing also offers lower interest rates compared to credit cards and personal loans.
Also, because you negotiate for a new loan, the term of your loan begins anew, and you could end up with a lower interest rate. Either of these can potentially reduce your monthly mortgage payments, giving you a little more flexibility each month.
Costs of a Cash-Out Refinance
As with any financial option, a cash-out refinance does have certain risks associated with it. As we mentioned, there is a chance of foreclosure on your home if you fail to pay off your loan. Because it’s a type of mortgage loan, it may require high, up-front closing costs or fees; though, this will depend on your lender. The overall interest you pay on your home could also increase since this is considered a brand-new loan with a new term.
The important thing is to consider both the benefits and costs before making your final decision.
Is a Cash-Out Refinance Right for You?
This is a great question to ask yourself. Are you going to use this loan to improve your home or invest in your future in some way? Are you willing to extend how long you’ll be paying on your home? Do you have any other means of getting the same amount of money needed without using your home as collateral? Keep in mind that a cash-out refinance doesn’t work for everyone nor is it meant for every homeowner.
Before you move forward, do your research and contact a professional lender to discuss your individual financial needs. Choose a lender you can trust, with great rates, an experienced staff, and all the services you’re looking for. Consider a credit union. Credit unions are known for better rates, reduced fees compared to standard lending institutions, and more personalized customer service.
Speak with the experts at Solarity Credit Union about how you can refinance and take equity out of your home. Their fast and easy no-closing-cost Express Refinance can help you get money quickly. Apply online, talk to a Home Loan Guide, and even close from the comfort of your home with the eSigning Experience. Get started today.