What Is A Cash-Out Refinance?

One of the main reasons to refinance is to reduce your interest rate or term, but with today’s low rates, we’re finding that cash-out refinances are just as popular as rate or term refinancing. But what is the difference? With a cash-out refinance, you can pull cash from your home’s equity – imagine a direct deposit to your bank account that you can use to pay-off other debtors, renovate your home, or purchase something you’ve always dreamed of (boat, 2nd home, new vehicle, etc.)!

So, what exactly is a cash-out refinance?

A cash-out refinance is a new loan to replace your current mortgage. The new loan amount will be greater than the amount you owe on your house, so the difference is paid out after closing.

Are there restrictions on how I spend the money?

Yes, and no. While your loan officer may consider your updated debt-to-income ratio to determine eligibility, there are no mandatory restrictions on how you spend the money. Here are some reasons our clients have chosen to get a cash-out refinance:

  • Lower Interest Rates: You might be able to lock-in a lower interest rate than your current rate, while pulling from your home’s equity.
  • Home Improvement Projects: Many clients are using a cash-out refinance to make improvements to their home.
  • Debt Consolidation: Pay-off your high-interest debt to get ahead of your finances and to consolidate your bills to one monthly payment.
  • New Vehicle/Boat: Need a new vehicle? Have you always dreamed of owning a new boat? You could use your cash-out refinance to make your purchase. With today’s rates, you might get a better deal than if you had to get a specialty loan.
  • Tuition: If you or your child are thinking about higher education, consider using your cash-out refinance to manage the expense.
  • Pad Your Savings: Want a larger emergency fund? Use your cash-out to buffer your savings account.
  • Investments: Use the funds you’ve earned to make financial investments toward your future.

Sounds great, but what’s the catch?

While a cash-out refinance could provide you the funds needed to renovate your outdated kitchen, consolidate your credit card debt, or pay-off your auto loan, moving forward with a cash-out refinance is a decision you should seriously consider. Here are some thoughts to keep in mind:

  • How long will you live in your home?
    • If you plan on moving in 5 years or less, talk to your loan officer about the financial benefits of refinancing today.
  • Can you comfortably afford the new monthly payment?
    • Since your mortgage balance will increase, thoroughly review the numbers with your loan officer to determine the cost-benefits.
  • Are you comfortable resetting your loan term?
    • If you’ve paid down your 30-year mortgage down to 20 years remaining, are you comfortable resetting your mortgage term back to 30-years? Speak with your loan officer to discuss your financial options.

I’ve weighed out my options, now what?

Contact our team of loan officers. We’ll answer any questions you may have and will help you decide if a cash-out refinance is the best decision for you and your family. 410.878.9730