A home is an excellent investment for many reasons. You get a roof over your head for life and a lifelong investment you can pass on for generations. You can also get cash for your home as you pay your mortgage. This last option comes from cash-out refinance.
What is cash-out refinance?
Let’s say your mortgage is worth $250,000, and you’ve paid about $150,000; you can get cash-out refinance based on the $150,000 equity you’ve earned. You could take a loan of $50,000, for example. Your smaller mortgage is then replaced with a bigger one.
Why get a cash-out refinance?
As highlighted earlier, a cash-out refinance is a way to get money out of your real estate investment. If you need money to settle a bill and have equity to exchange for cash, you can cash-out refinance.
We should mention that you cannot get all of your equity in cash. The status quo is that you need to have at least 20% equity left after you get a cash-out refinance. So, with the example highlighted above, you could get up to $120,000. A cash-out refinance could be ideal when you need to renovate your home and do not want the bills to go somewhere else, probably your credit card.
You could also get the cash to settle a high-interest loan. Instead of servicing high-interest credit card loans, you could get the cash for the loan payment and subsequently focus on the mortgage. At this point, we should mention that interest rates on cash-out refinances are tax-deductible. On the other hand, even though credit cards have a higher interest rate, they are still not tax-deductible.
The associated renegotiation of your mortgage is another reason for getting cash for equity. When you get a cash-out refinance, you exchange your old mortgage for a new one. This means that you could get better interest rates with a cash-out refinance based on when you get the new mortgage.
Basically, you should get a cash-out refinance because it is a cost-effective way of getting and applying money. Whether the money goes to bills or investment, you should consider getting a cash-out refinance as long as you get a better deal with your money overall.
We should also mention the association between a cash-out refinance and your credit score. Let’s say you get the cash to pay off personal loans, it will come with an improved credit score. This is especially the case if your credit utilization ratio drops.
Why should you get a cash-out refinance now?
With a cash-out refinance, you get a new mortgage that could mean better interest rates. The current real estate trends indicate that you can get better rates now.
Mortgage rates are currently at a historical low. As such, if you get a cash-out refinance during this period, you are sure of a better deal in terms of your mortgage rates. Interest rates are the top factor to consider when you are thinking about a cash-out refinance. We are sure that you are covered as regards interest rates.
The proceeds from a Cash-Out Refinance can be used for anything that you want, consider a renovation, or using your equity to payoff high interest credit card debt to decrease your total monthly bills.
You should get cash for your equity now because the new mortgage will most likely come with a lower interest rate than you currently have. The rule of thumb with refinancing is that you only refinance loans when you are sure of lower rates. With the historically low rates currently available, we are sure that refinancing is a worthy consideration right now.
Apart from the interest rates, you should consider other factors before getting a cash-out refinance. These factors include the closing costs. The closing costs include appraisal fees and lender origination fees. These costs can range from 3 to 5%.
Consider the costs you would incur in getting a cash-out refinance. The closing costs could make the new loan more expensive. That is the case when the new rates are not significantly lower than the old rates. However, in this case, the rates are at a historically low level that should cover the closing costs and any other expense.
Contact Coastal Pacific Lending for your options and to get started now.