Owning a home can be a great source of pride and satisfaction. It can also be a great investment over the long term. As your home builds value and you continue to pay off your mortgage, your home builds equity—which can be tapped into to help pay for expenses. Instead of relying on high-interest credit cards or personal loans, homeowners who have sufficient equity in their homes can access funds through refinancing.
Cash Out Refinancing
If you find yourself in need of some extra cash, your home may be a source of funds you’ve overlooked in the past. With a Cash Out Refinance, homeowners can refinance their mortgage for more than what they owe and receive the difference in cash, helping them pay off other debts, fund a special home improvement project, start a small business or anything else they want. While Cash Out Refinancing may not be an ideal solution for every homeowner, it can be a much more beneficial alternative to taking out personal loans or opening a line of credit.
How it Works
Let’s say your home is worth $200,000 in today’s real estate market. And let’s say you currently owe $150,000 on your mortgage. Your equity is calculated by subtracting what you owe from the current value, in this case your equity would be $50,000. If you choose to take out a Cash Out Refinance, you could refinance your loan for more than $150,000 (let’s say $175,000) and the difference between what you owe and the new loan would be given to you to spend as you see fit.
In our example, let’s say you do a Cash Out Refinance for $175,000. Since you only owed $150,000 on your mortgage, you would receive the $25,000 in cash. That money could then be used to pay for whatever you like. If you have big expenses you need to take care of, or if you want to consolidate debt, this could be a great way to do so. While there are no restrictions on how you can use the cash, it’s recommended that homeowners who choose a Cash Out Refinance only use the money for big expenses that will help them financially in the long run. It’s best to avoid using a Cash Out Refinance to simply fund your living expenses or to spend on frivolous luxury purchases.
A Few Ideas for Using a Cash Out Refinance
A Cash Out Refinance might make sense for you if you…
- Have high-interest credit card debt you want to pay off
- Want to fund a large-scale home improvement project
- Want to go back to school to further your education and career
- Want to start a small business
- Need to get caught up on medical bills or other major expenses
Learn More About Cash Out Refinancing
If you’re ready to explore Cash Out Refinancing and see if it makes sense for your situation, please feel free to reach out to Luxury Mortgage today. Our team of refinancing professionals can answer your questions and provide you with a free rate quote. Click below to get started.
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