Cash-out refinancing can be a good option if you need a large sum of cash for expenses like consolidating high-interest debt or making home improvements. While you have flexibility in how you use the funds, it’s wise to have a specific plan in place before moving forward.
Additionally, if you’ve improved your creditworthiness or interest rates have dropped overall, a cash-out refinance can be a way to lower your mortgage interest rate on top of providing you with extra cash.
Get cash in hand for the equity that you’ve worked to build in your home
Use the cash for home improvements, a major purchase, or anything you see fit
If your finances have improved since you first got the loan, you may be able to qualify for a lower interest rate with a cash-out refinance
Conventional cash-out refinances offer an option for homeowners looking to access cash through their home equity. The minimum equity requirement to qualify is typically around 20%, though this can vary by lender. The property you refinance must be your primary residence, and you’ll need to be current on your mortgage payments for 6-12 months depending on the lender. A new appraisal is mandatory to determine your home’s current market value and establish the maximum loan amount you can qualify for.
You’ll receive a lump sum of cash, in the form of a check or bank wire, when you close on the new loan. The loan is first used to pay off your existing mortgage, along with any closing costs such as home insurance and real estate taxes. The remaining funds are yours to use.
You may save money with a cash out refinance if your new interest rate is lower than your current rate. For instance, if your current mortgage has a rate of 5% but you qualify for 3% with a cash out refinance, you’ll save money in interest over the long run of your loan.
With a cash out refinance, your current mortgage loan is replaced with a new one. With a HELOC loan, you’ll have a second mortgage loan. In both situations, your home is used as collateral and you’re entitled to use the funds however you want. Cash out refinances tend to offer lower interest rates, so it’s up to you to choose which option better suits your situation.
