Cash Out Refinancing Make Your Equity Work For You
If you have more than 20% equity in your home, you may be eligible for a cash out refinance.
A cash out refinance involves borrowing money against the value of your home by obtaining a new, refinanced mortgage loan.
You can use cash out for a variety of purposes including debt consolidation, education expenses, home improvements, investments and more.
How It Works
Let's say your home is appraised at $200,000 and the current outstanding mortgage balance is $120,000. Assuming a maximum loan-to-value of 80%, you would be eligible to get a new mortgage up to $160,000, which would pay off the original mortgage and provide you up to $40,000 in cash. As with any mortgage, closing costs need to be considered and could be covered by some of the cash proceeds.
Key Benefits Of Cash Out Refinancing
• Cash is freed up to use in a variety of ways.
• Maintain one loan rather than multiple loans. Can consolidate credit cards, student loans, home equity line of credits (HELOCs), etc.
• Save with lower interest rates.
• Mortgages typically have lower interest rates than other loan types, especially credit cards. Additionally, credit cards and HELOCs do not always require consistent payment on the principal so you could predominantly be paying interest only.
• If your refinanced interest rate is lower than your original mortgage rate, you could save money on interest.
• Potentially raise your credit score - If you use your cash out to pay off large credit card debt, that may lower your credit utilization ratio, which is a factor in determining your credit score.