Refinancing your home means you are swapping your current mortgage loan for another one. There are several reasons people do this, such as getting better loan terms, paying off debt, and obtaining money for a large purchase.
Cash-out refinances are what you would use to obtain money to fund a significant bill like home renovations or pay off credit card debt. If you have enough equity in your home, you can get cash from one of these refinance loans. But, just because you’re able to get a cash-out refinance doesn’t mean you necessarily should.
Let’s look closer at these types of refinance loans to help you decide if you’re making the right move.
A cash-out refinance loan refinances your mortgage loan for more than what you owe. The difference between what you owe on your house and the extra funds go to you at closing. However, if you are paying off debt, the creditors will get the remaining amount. You must have equity (usually at least 20%) in your home before attempting one of these loans.
Let’s get to the nitty-gritty details of how these loans work.
As an example, you currently owe $100,000. After living in your home for a few years, you have $75,000 built up in equity. So, you want to spend $30,000 in home renovations. Therefore, you would take out the loan for $130k. After paying off the value of your home, you will then receive the remaining balance to use for your expenses.
Just like obtaining any loan, you must prove that you can make the payments on the new loan by providing proper documentation. Look around for a lender that offers you the best rates. You’re under no obligation to refinance through the same mortgage company.
There are some excellent reasons to do a cash-out refinance that can be beneficial to you and your way of life.
These types of refinances won’t benefit everyone and can do damage to your credit if you’re not prepared.
Cash-out refinance loans can be helpful to someone who needs to obtain money for debt consolidation or a significant purchase. However, there may be other types of advances that make more sense for your situation. Do your research and speak with a professional about how a cash-out will affect you.
Contact Twin City Lending to speak with a lender about what loan options are best for your wants and needs. We aspire to assist you in meeting your goals and making your dreams come true.