December 01, 2021

How a Cash-Out Refinance May Be Good for You

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Home values have gone through the roof in 2021, and experts aren’t predicting a sharp bursting of the bubble like in 2008. So even if you’re not looking to sell any time soon, you can take advantage of the rise in home values by taking a cash-out refinance.

Center’s Healthcare has the details on if a cash-out refinance is the right thing for you to do.

What Is a Cash-Out Refinance?

A cash-out refinancing allows you to restructure the terms of your mortgage while also getting a cash payout at the same time. In order for this to work, you must owe less on your current mortgage than what the home is worth. So if you owe $150,000 on the home but it is worth $400,000, you would be able to get up to the difference in cash. You could, for example, take out a new mortgage for $200,000 and get the difference of $50,000 in cash, which you would pay back as part of the new mortgage price but presumably at a lower interest rate than you were paying on the mortgage—and an especially lower rate than you would get on a loan from a lender.

What Are Good Reasons to Go Forward With a Cash-Out Refinance?

With rising home values and very low interest rates, now is a great time to explore this option if you need a large amount of cash. The interest rates on the new mortgage will be significantly lower than a cash loan or interest that you would have to pay back on a credit card.

One reason people typically get a cash-out refinance is if they’re looking to pay off the balance of high-interest credit cards. Another common reason is either for a large purchase for the home or to be able to pay for a major renovation—to the kitchen or bathroom, for instance. Other reasons can be for a major home improvement like a swimming pool or to replace a roof or air-conditioning system.

Explore Your Options

While you typically get a better interest rate through this option than through a home equity loan, you will have to pay closing costs on a cash-out refinance. In addition, if you borrow more of 80% of the home’s value, you will have to pay private mortgage insurance (PMI), so be sure to talk to your lender to see if these additional costs will make it worthwhile to pursue this option.

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