Five Benefits of a Cash-Out Refinance

A cash-out refinance is a mortgage transaction which allows the borrower to access the equity within their home to pull “cash out”. The amount of money borrowed depends on the maximum equity available and how much the borrower can qualify for. The new, higher mortgage amount less the closing costs of the loan and any previous balance on the current mortgage results in a surplus which is available to borrower. The benefits of a cash-out refinance will vary based on the borrowers’ needs. Here are benefits/uses for a cash out refinance.

Debt Consolidation
Debt consolidation is one of the more popular reasons for homeowners to do a cash-out refinance ac-cording to Freddie Mac. The combining of high-interest credit card payments into one manageable payment is very attractive. Combining these debts may free up cash flow for a borrower to achieve other financial goals and lower their total monthly obligations. The elimination of these debts may allow for the borrower to invest in a retirement fund, pay down their mortgage quicker or simply give a borrower peace of mind. Additionally, this is not limited to just credit cards, but also paying off HELOCs, home improvement loans or home improvement liens. The elimination of debt may also result in an improved credit score by lowering the utilization of revolving debt.

Cash To Use However You Want
Some borrowers may use the cash in a cash-out refinance to invest in the stock market, pay off liabilities, invest in their child’s education, make major purchases or any other combination of reasons. Pulling out cash gives the borrower flexibility to use the money how they please. Some borrowers may create a cash cushion as a rainy day fund or unexpected expenses. Again, the choice and flexibility are the borrowers.

Home Improvements/Renovations
Borrowers will sometimes use the money in a cash-out refinance to improve their home with a new bathroom, kitchen or roof. In addition, improving a home could also add to the value of that home and thus, increase its equity. A high-efficiency furnace, air conditioning unit, a whole house generator, insulation, solar panels or windows are major improvements that usually require a significant amount of money. Why not let the equity in the home pay for them? Likewise, replacing those old, inefficient items could result in future savings each month by lowering heating and cooling costs while adding to the home’s value and efficiency. A cash-out refinance assists with these purchases and home upgrades by securing everything with one affordable payment.

Major Purchase
Some borrowers will use a cash-out refinance to make a major purchase, like a vacation home, vacant land or an RV. The cash-out refinance provides the borrower the flexibility to use the money how they want and for what they want. It also allows for the money to be borrowed at a fixed rate and with a manageable monthly payment.

Satisfy Legal Obligations
A cash-out refinance may also allow for a borrower to satisfy legal obligations such as a divorce decree, federal/state income tax lien, or back property taxes. Removing these legal burdens using the equity of the house is yet another benefit of the cash-out refinance.

While the choices and uses can be endless, the equity within the home can help benefit a borrower in several financial ways. Removing, reducing, or eliminating debt, satisfying legal obligations, achieving financial goals, or just creating a cash cushion are just some of the benefits of this type of transaction. Cash-out refinancing is available with a variety of terms; 30-year, 20-year, and 15-year or a term you specify. Cash-out refinancing can also be used with a variety of home types such as a primary residence, second home or investment property.

Please talk to your Home Loan Advisor at Hall Financial to see how you can use a cash-out refinance to your benefit.