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Refinance With Cash out

Written By: Travis Carter : Loan Options

 

Refinance with Cash out

Refinancing with cash out can be a great option if you want lower your monthly payment, consolidate debt, or create a nest egg. A cash out refinance is a great way to tap into low interest money with your home as security. In some cases it may be possible to lower the interest rate and receive cash out with a mortgage payment equal to your current payment.

How a Cash Out Refinance Works

What is Home Equity

Home Equity is the difference between the value of your home and the amount that you owe. If your home is valued at $200,000 and you owe $150,000 then you have $50,000 in equity.  Although you may not be able to use all of the equity for cash out or debt consolidation, this equity could be a great tool to borrow money at lower interest rates. 
 
Because a home is such a secure asset, a mortgage is a less risky loan. First, most families make sure their home is paid first. Second, a home cannot be moved. In the event of default a home isn’t very hard to find. Because of the great security in real estate, mortgages typically have lower interest rates than unsecured loans. In a typical market a personal loan interest rate is 3% higher than a mortgage refinance with cash out. 
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How Do I Take Cash When I Refinance My Home

Refinancing with cash out is the process of paying off your current mortgage with a higher loan amount than you currently have. The difference between your current mortgage payoff and the new loan amount is given to you in cah. The equity you have in your home allows you to borrow more against your house. 
 
When you first purchased your home you probably used a mortgage. Depending on the mortgage program they allowed you to borrow a percentage of the sales price. When you refinance the process is very similar except, the loan amount is a percentage of the value instead of the sales price. If your home is worth $200,000 and the maximum loan to value is 90%, you can borrow up to $180,000. If you only owe $100,000 then you could receive up to $80,000 in cash out. 
 
If the cash out seems realistic with initial estimates, your mortgage professional will order an appraisal to determine the value of your home. The maximum loan amount is determined by a percentage of the total value of the home. 
 
Not all loan programs are the same and your qualifications might be different than the example above but before you take out a personal loan for 8% interest, look into a low interest refinance with cash out. 

Other Ideas to Consider When You Apply For a Cash Out Refinance

1. Mortgage Interest is Tax Deductible

According to taxslayer, the interest you pay on a mortgage or a home equity line of credit for your primary residence or a second home can be deducted from your income when you: File taxes on Form 1040 and itemize your deductions.
 
Taking the tax deductibility into consideration can help when making a decision to refinance. Even with a higher monthly payment you could save money at the end of the year by seeing rewards in the form of tax deductible mortgage interest. This is dependent on your tax rate and is not the same for all borrowers so be sure you discuss this with your accountant and mortgage professional. Refinancing with cash out can have other benefits too. 

2. You Can Pay Off High Interest Credit Cards

If you plan to use your cash out to pay off high interest credit cards, you could see additional savings. By eliminating monthly payments on credit cards, you can lower your overall monthly expenses or pay off your mortgage faster. 
 
Assume you pay off $20,000 in credit cards with a monthly payment of $380 a month. Your mortgage payment could increase by $70 a month, however, you would save $310 every month. If you added the monthly savings to your mortgage payment, you could pay down your mortgage and credit cards faster than if you never refinanced. Your current term and interest rate should be considered so be sure to talk to your accountant and mortgage professional.

3. You Could Increase The Value Of Your Property With Home Improvements

You can also refinance with cash out to pay for home improvement. With a home improvement loan, you can increase the value of the property. By increasing the value you will have more equity in the property. In some cases you can gain more in equity than the cost to build. As a rule, adding square footage is the best way to increase the value of your home. If you are considering a refinance with cash out to improve your home, I suggest paying for a second appraisal to determine what your home will be worth when the improvements are complete. 

4. You Could Pay For College

Paying for college with a cash out refinance is gaining popularity. The ever increasing cost of an education has resulted in some parents tapping their home equity. If you are like so many families that do not want their child entering the workforce buried in debt, a refinance with cash out could help. In some cases families are cooperating to have the child pay a small portion of the mortgage when they are capable to help pay for their college education. This is a great opportunity to not only pay for college but teach your young adult responsibility. 

5. Pay Off Medical Bils

Health insurance has the highest cost in history. Not all families can afford great health insurance. If you are a family that makes too much for government help but not enough to pay for great health insurance, you might end up paying a hefty price tag for a medical emergency. It is always best to prepare with health insurance but if you have medical bills that need to be paid, a cash out refinance might the able to help. I addition, the tax deductible element of mortgage interest could even lower your total costs. 

In summary, a Cash out Refinance can be used to;
  • Lower Your Monthly Payments
  • Pay Off High Interest Debt
  • Increase Property Value With Home Improvements
  • Increase Tax Deductions
  • Consolidate Debt
  • Pay Off Your Mortgage Faster
  • Pay For an Education
  • Pay Off Medical Bills

If you would benefit from a cash out refinance, get started below to have one of our mortgage consultants call you today. There is no cost to apply and your credit will not be impacted unless you have the home equity to make it possible. 

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