3 Reasons to Get a Cash-Out Refinance

If you love your home but hate the terms of your mortgage, you don’t have to move to get the change you’re looking for. Instead, homeowners may be able to find relief through refinancing.

one with Mortgage refinancing, you can get a new loan to pay off your old loan, leaving you with new mortgage terms. Doing so can potentially lower your mortgage interest rate (depending on current market conditions vs. when you took out your initial mortgage) or help you make changes such as shortening the length of your mortgage.

An alternative is to get one Cash-out refinancing loan, where you replace your old mortgage with a larger loan based on the equity you’ve built up in your home. The excess amount above your previous mortgage balance can be used as cash, although you still have to pay it back over time. Typically, you can borrow up to 80% of the value of your home in a cash-out refinance. So, if your home’s value increased during the recent real estate boom, you may have access to more cash than you realize.

If a cash-out refinance sounds beneficial to your personal financial situation, start exploring your options online now or use the table below to check your local offers.

3 Reasons to Get a Cash-Out Refinance

Some of the top reasons for taking on this larger loan include the following:

Consolidate/pay off high interest debt

Power is the only reason A cash-out refinance loan Consolidating/paying off high-interest debt so you ultimately save money. To do this you need to compare the mortgage refi rate with other interest rates on your loan.

For example, maybe you’ve racked up credit card debt, which carries double-digit annual interest rates. If you can get a cash-out refinance for a much lower, single-digit mortgage rate, it may be worth using those funds to pay off that high-interest credit card debt.

However, this decision also depends on factors such as the size of your mortgage versus your credit card debt. You need to calculate your expected savings by paying off your high-interest debt now at your current pace versus your expected timeframe. Then, you need to compare it to the cost of a mortgage refinance loan.

If you have $1,000 in credit card debt, you might not be happy paying, say 20% interest, but you can probably find a way to make extra money to pay off that card in a few months. In that case, the cost of refinancing may not be worth it. But if you have $100,000 in high-interest debt and you can borrow $100,000 at a lower interest rate with a cash-out home loan, it may be an easier decision.

You can easily explore your refinancing options here to see if it makes sense.

Pay for renovations

Another possible use for a cash-out refinance is to use the money to renovate or remodel a home.

Depending on the project you’re looking to tackle, your costs can range from thousands of dollars to even $100,000-plus. There are many ways to add an extension, remodel or renovate your home, from redoing your kitchen to investing in landscaping.

If you don’t have that cash, you can compare cash-out refinancing rates vs. Other types of loans. If you can get a good deal on mortgage refinance rates, such as if it lowers your current mortgage rate and gives you extra liquidity, then you may decide to go ahead with this option.

Make other investments

If you want to fund another investment, such as buying a second home, a cash-out refinance may make sense. Well, this may increase your overall debt and risk, but depending on the investment opportunity, you may see it as a worthwhile tradeoff.

Let’s say you bought your home for $500,000 and it appreciated to $1,000,000. Instead of waiting until you realize that profit, maybe you do a cash-out refinance that gives you $300,000 in cash. And maybe you use that money to buy a smaller one Rental property directly

If all goes well, you may be able to use rental income to subsidize your new mortgage after a cash-out refinance. In the meantime, you gain this new asset in the rental property.

That said, you want to be mindful Bail rate. The cost of financing a cash-out home loan can be higher than what you can make with other investments, so it’s important to consider your options. Also, consider talking to a financial advisor or trusted professional to see what your investment options and financial situation might look like if you refinance. You can now check eligibility and current refinancing interest rates online!

Bottom line

A cash-out refinance can be a great way to give yourself more financial flexibility, especially if you can benefit from refinancing at a lower interest rate. With the Fed’s recent interest rate hikes, finding low mortgage rates can be difficult right now, but it’s something you may want to keep an eye on, as market conditions can change.