Take Advantage Of Your Home’s Equity with Cash-Out Refinancing
No one knows when life can bring unexpected circumstances that require an emergency money stash or a rainy-day fund. And even with the best of planning, we can all find ourselves in situations that have us asking, “how will I pay for that?” You may not know that when you decided to become a homeowner, you started accruing equity, which can act much like a rainy-day fund.
Cash-out refinancing on your mortgage can give you quick access to cash, give you an opportunity to take advantage of lower interest rates and lessen the interest over the life or your loan.
Here’s How Cash-Out Refinancing Works:
Cash-out refinancing lets you turn a portion of your home’s equity into cash that you can use however you want. It can be a solution to paying off credit cards, consolidating debt, funding college tuitions or remodeling your home.
Here’s an example:
Jane’s son is heading off to college this fall. Jane recently had to dip into her savings (meant for her son’s college tuition) to replace the heating and air-conditioning unit in her home, replace the alternator in her car and repair some home plumbing issues. So Jane decided to let her home’s equity, which exists because of Jane’s years of financially-responsible mortgage payments, help fund her son’s tuition.
Jane’s home’s value:$300,000
Jane’s remaining mortgage owed: $200,000
Jane’s home equity: $100,000 (amount Jane has already paid into her loan)
With cash-out refinancing, Jane can take out a portion of the $100,000 equity in cash, say $25,000, to help pay for her son’s education. Jane will refinance her mortgage like this:
Jane’s equity turned into cash: $25,000
Plus Jane’s remaining mortgage owed: $200,000
Jane’s new mortgage total: $225,000
Jane’s new mortgage will increase by the cash-out amount. Plus, it’s possible that Jane may end up receiving a lower interest rate or a shorter loan term, both of which offer opportunities for savings on the new loan. You might call this a win-win!
How Can You Use Your Cash-Out Refinancing?
Homeowners take advantage of cash-out refinancing for many reasons, from paying off debt, to paying for private school or renovating a home to sell.
Thinking of Jane’s situation above, what could you do with an extra $25,000 in your pocket? Maybe you could:
- Pay down or pay off any high-interest credit card debt
- Consolidate multiple home loans into a single payment at a lower rate
- Pay off auto loans or other debt
- Fund college, private school or other education expenses
- Remodel or renovate a home
- Take care of health-related expenses
- Make real estate or other investments
- Accommodate a growing family or other life-altering events
- Help your child purchase their first home
- Take a dream vacation
When the unexpected happens and you find yourself in need of extra cash, remember cash-out refinance as a possible solution. If you would like to cash in on some of your home’s equity, contact a PrimeLending loan expert today to discuss your cash-out refinancing options.
From the PrimeLending blog, by Mandy Jordan