Cash-Out Refinance Possibilities
A mortgage is a serious financial commitment, but it isn’t necessarily permanent. Mortgage refinancing can serve many purposes depending on a borrower’s needs. Cash-out refinancing is one of two major categories of refinancing in which a client’s old loan is replaced for a new loan with a higher value. In exchange for undertaking a higher-valued loan, the borrower turns the equity he or she has built into a cash payment. Here, we’ll go deeper into what a cash-out refinance is, so you can start thinking about what’s right for your refinance needs. Aaron McDaniel – Cherry Creek Mortgage is a local mortgage professional with refinancing solutions for homeowners in Keller, Denton County, Frisco, and Irving Texas. Contact us for a quote or simply with questions about this and everything else home financing.
The Basics of Cash-Out Refinance
Cash-out refinance differs from rate-and-term refinance, which is only designed to improve the rates or term of a mortgage, with no cash payout. You can still get a better interest rate with a cash-out refinance, but it will increase your loan value, so usually only clients who have a specific need for the cash payment choose this loan.
You should have at least 20% equity in your home if you hope to get approved for a cash-out refinance. How much equity you have determines how much of a cash-out payment you can receive, as lenders usually will only finance the cash-out portion of your loan for 80-90% of the value of your equity. That means if you have a 20% equity in a $100,000 home ($20,000), you can get a cash-out payment of around $17,000.
There are a few additional costs to consider with a cash-out refinance. First, you’ll need to pay closing costs at the beginning of the loan. Also, if you end up with less than 20% equity at the close of your refinance, you will need to pay PMI again until you reach that level of equity again.
Using Your Cash Payment
There are many ways clients choose to use their refi cash. Some want to pay off credit card debt or other loans with volatile interest rates. This is highly popular because you can deduct mortgage interest on your taxes, but you can’t do the same with credit card debt. Others use it to fund major home renovations, pay for their own or another’s college tuition, or to go on a once-in-a-lifetime vacation. You are free to choose how you spend it; we simply encourage our borrowers to have a clear plan because trading in equity should not be taken lightly.
We’re Here to Help
Aaron McDaniel – Cherry Creek Mortgage is a local mortgage professional you can depend on. We also have trusted, national lenders on our side who have competitive rates and flexible terms. If you live in Keller, Denton County, Frisco, or Irving and are considering cash-out refinance, call us to get started today.