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Owning a home is one of the biggest investments you will ever make. That being said, there are times when you may be asking yourself if you should refinance. While some may be struggling to pay their mortgage, others could be trying to pay off their home sooner than expected. There are various reasons to refinance and a cash-out refinance is often considered by homeowners.
What is a Cash-Out Refinance?
A cash-out refinance allows you to refinance your home for more than you owe on it so you can get extra cash at closing. You can use this extra cash in many ways, though many do it to improve their lives (and their financial situation).
How does a Cash-Out Refinance work?
In order to get a cash-out refinance loan, you need to have equity built up in your home. Before you decide to go this route, you must consider a few things.
- You may be paying more interest because you are going to owe more money than you do currently.
- There may be a limit on how much cash you can really get with a cash-out refinance loan (and you will not be able to get cash for all of the equity you have built up)
Reasons to get a Cash-Out Refinance
- Lower interest rates: You may be able to get a lower interest rate on your mortgage than you are currently paying. Even a partial percent can bring down your monthly payment (or allow you to pay it off sooner).
- Debt consolidation: Many homeowners struggling with high-interest credit card debt opt for a cash-out refinance to help them get ahead of their finances. They can pay off all of their credit cards and only have one monthly payment to worry about.
- Home improvement projects and repairs: After living in a home for so many years, many homeowners use these types of refinances to make some changes to their homes. Whether your bathroom has some major plumbing problems or you want to redo your kitchen, a cash-out refinance may be the best option to get this completed.
- Tax deductions: You may be eligible for a mortgage interest deduction on your taxes if you use the cash to improve your home in any way.
- New vehicle: You could use a cash-out refinance loan to buy a vehicle. You might get a better deal than if you had to get a loan specifically for your vehicle.
- Tuition. Whether you or your child are thinking about college, you may be able to use your home equity to help.
Is it a good idea to Cash-Out Refinance?
As good as it sounds, a cash-out refinance isn't always a good idea for every homeowner.. Here are some things to consider.
How are interest rates? There is no point in refinancing your home if your payments aren't going to be more manageable.
Are you going to work harder on your finances? Getting your debt under control is a great reason to use a cash-out refinance. However, if you just keep using your credit cards, you may find yourself in credit card debt in a few years.
Are you going to just drag out your debt for the next thirty years? Instead of paying off your debt over the next few months (or years), you are going to be paying it off for the next twenty or thirty years. This may not yield the savings that you imagined.
Considering a cash-out refinance? We can help.
If you are considering a refinance on your home, don't hesitate to contact us today. One of our local loan officer experts will help you decide if refinancing is the best step for you and your family. We will be able to answer any questions that you may have about refinancing, a cash-out refinance, or any of your insurance needs.
Please note, by refinancing your existing loan, your total finance charges may be higher over the life of the loan.