You may have considered moving to a new home but have not found the perfect one for you and your family. Home renovations may make your current home feel like new. Or perhaps you want to pay off credit card debt and better position yourself financially.
Those are two reasons that a cash-out refinance may be a smart financial move for you.
If you have equity in your home, a cash out refinance may be an option for you. This type of refinance would allow you to replace your existing mortgage with a higher loan amount, allowing you to get cash back. You would receive cash for the remaining amount after paying off your existing loan amount.
Here’s how a cash-out refinance works:
- It pays your current mortgage and allows you to apply for a higher loan amount.
- A cash out refinance has a limit to the amount of equity that can be received in cash. This is normally between 70% to 80% depending on the loan program.
The pros of a cash-out refinance:
- A mortgage refinance typically offers a lower interest rate than a home equity line of credit or home equity loan.
- You can make home renovations with a cash-out refinance, potentially adding value to your home.
- You can save money in interest and increase your credit score by paying off your debt in full.
A note about private mortgage insurance:
If you have a lot of equity in your home, there’s a good chance you are no longer paying for private mortgage insurance, or PMI. If you borrow more than 80% of your home’s value, you’ll have to pay private mortgage insurance.
A cash-out refinance can make sense. Using the money to fund a home renovation or consolidate debt can rebuild the equity you’re taking out or help you get on a sounder financial footing. As with any mortgage loan questions, we would be happy to discuss this with you further.