Getty Images
The current high interest rate environment, combined with high home prices, has a A growing number of Americans Turning away from buying a new home. But if you’re not ready to sell your home and move somewhere new, homeowners can still benefit from the market today.
One way to tap into your home’s value is through a Cash-out refinancing. This can be useful for accessing large amounts of cash — especially if your other options carry much higher interest rates — but it comes with additional fees and can potentially increase your balance. Pay off your mortgage In the long run.
To get started, compare the refinances you may qualify for right now here.
What is a cash-out refinance?
When you complete a Cash-out refinancing, you take out a new mortgage that is worth more than what you currently owe on your home. Then you use that loan to pay off your primary loan. When you close the new loan, you get the difference in value as cash.
While you can technically use that cash for whatever you want, it’s usually financially wise to use it to put value back into your home—through a renovation or repairFor example — or to pay off existing debt with much higher interest rates.
Is a cash out refinance worth it?
If you’ve owned your home for a while and already have high interest rates, a cash-out refinance can be a good way to access a lump sum and potentially lower the rate you pay on your mortgage.
If you’re considering refinancing today, look for options that have lower interest rates than what you’re currently paying. depends on you Credit scoreLocation and other details of your application, you may be able to score an interest rate 6%-7% APR or even less.
A cash-out refinance can be especially worth it if you’re in an area where House prices have increased, because it gives you more equity in your home and more borrowing potential. For example, say you took out an initial $400,000 mortgage when you bought your home. Today, you still owe $200,000, but your home is worth $500,000. Lenders usually allow you to borrow up to 80% of the current value of your home. In this case, that means you’ll be able to take out a loan worth up to $400,000 — and get $200,000 in cash (since you still owe $200,000).
There are cases when a cash-out refinance may not be worth it to you.
For example, if you locked in a low interest rate during the pandemic-era housing boom, you don’t want to give up that low rate to refinance. Your new interest rate may be significantly higher today and result in you paying more in interest payments over the life of the loan.
Compared to other borrowing options, a cash-out refinance can cost you a significant amount Closing costs and other fees. Make sure you talk to your lender about the full terms of your new loan before you sign.
Compare today’s top refinance rates here to see if it’s right for you.
Cash-out refinancing option
If you’re not sure if a cash-out refinance is the right move for you, you can access low-rate financing by using the value you’ve built up in your home. Here are some options to consider.
Home equity loan
Home equity loan, like cash-out refinancing, allows you to access a lump sum of money based on the equity you’ve built up in your home. However, this type of loan doesn’t require you to change anything about your existing mortgage – it’s a new loan, and is sometimes referred to as a Second mortgage.
Home equity loans also allow you to tap About 80%-85% of your home’s valueand typically carry fixed interest rates that are similar to but may be slightly higher than today’s refinancing rates.
HELOCs
Home Equity Lines of Credit (HELOCs) Another way to access value is that you build your home, but they are a little different. When you apply for a HELOC, you get approved for a line of credit. You can borrow up to the allowed limit, but you don’t have to use it all. Then, you pay back the amount you actually borrowed at a variable interest rate.
Home equity loans and HELOCs are best used for home renovations, since you can afford Deduct interest You pay when you file during tax season.
Learn more about today’s home equity rates here.
Bottom line
Cash-out refinancing Tapping into your home equity can be a good option. Before you refinance your existing mortgage, though, make sure the rate you’re refinancing to is lower than your existing mortgage and that you can afford your new monthly payments over the life of the loan. Depending on how you plan to use the borrowed money, it may also be worth considering options like home equity loans and HELOCs, which may offer better loan terms and tax deductions over time.
No Comments
Leave a comment Cancel