Cash-Out Refinance

Cash-Out Refinance

A cash-out refinance allows you to use your home as collateral for a new loan and some cash, creating a new mortgage for a more considerable amount than what is currently owed. Getting money by using the equity in your home can be an easy way to get funds for emergencies, expenses, and wants.

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What Is a Cash-Out Refinance?

A cash-out refinance is a mortgage refinancing option that lets you convert home equity into cash. A new mortgage is taken out for more than your prior mortgage balance, and the difference is paid to you in cash.

In the real estate world, refinancing, in general, is a prevalent method for replacing an existing mortgage with a new one that typically extends terms to the borrower that are more favorable. By refinancing a mortgage, you may be able to lower your monthly mortgage payments, negotiate a lower interest rate, renegotiate the periodic loan terms, and remove or add borrowers from the loan obligation. In the case of a cash-out refinance, access cash from the equity in your home.

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Term or Rate Change
The Loss of Equity
Resetting Your Loan Term
Debt Consolidation

Term or Rate Change

Myth

Refinancing can only change my term or rate.

Fact

While your rate and term may change the timing of a cash-out refinance, the goal is to access the equity in your house by taking cash out. You may select the same term and will get the market rate.

The Loss of Equity

Myth

You’ll lose your equity.

Fact

Your home equity is only affected if you add to your loan principal, as you would during a cash-out refinance. The cash is accessed from the home equity you’ve earned so that equity will be lower based on the amount you take out.

Resetting Your Loan Term

Myth

You have to reset your loan term.

Fact

Depending on your chosen lender, you may not have to start your term over. It’s becoming more common for lenders to write custom loans with not-so-traditional terms.

Debt Consolidation

Myth

A cash-out refinance won’t let you consolidate debt.

Fact

The money you get from your cash-out can be used for many different things. Many people use these funds to update or renovate their homes. The money can also consolidate high-interest debts like credit cards and other loans.

30-Year Fixed-Rate Mortgages

Myth

A 30-year fixed-rate mortgage is always the best choice

Fact

If you can afford higher payments, you can own your home outright in less time and for less money with a 15-year fixed-rate mortgage.

How a Cash-Out Refinance works

The process for a cash-out refinance is analogous to a rate-and-term refinance of a mortgage, in which you replace your existing loan with a new one for the same amount, usually at a lower interest rate or for a shorter loan term or both. In a cash-out refinance, you can do the same and also withdraw a portion of your home’s equity in a lump sum.

You tend to pay more interest after completing a cash-out refinance because you’re increasing the loan amount, and like other loans, you’ll have to pay closing costs. Otherwise, the steps to do this refinance should be similar to when you first got your mortgage:

  • Apply after selecting a lender
  • Provide the necessary documentation
  • Wait for approval
  • Wait out the closing

Reasons To Consider A Cash-Out Refinance

A cash-out refinance can provide several financial benefits and may present advantages over a personal loan or second mortgage. Here are some reasons to consider a cash-out refinance:

 

Fund Home Improvements And Renovations

Upgrades are often necessary, from questionable design choices to a broken HVAC system. A cash-out refinance allows you to use the equity earned to fund home improvements.

Consolidate Debt

A cash-out refinance can provide you with the money you need to pay down your debts and transfer what you owe to one suitable, lower-interest payment.

Get A Lower Interest Rate

If you put an unplanned bill on a variable credit card, you might pay a high amount of interest – the prime rate tied to the federal funds rate set by the Federal Reserve, plus a specific number of percentage points. Mortgage and refi rates usually are lower than credit card interest rates – often significantly lower. If you have enough equity in your home to cover your bill, you may save thousands in interest over time.

Free Up Money To Invest

Considering the power of compounding interest, it can be an intelligent move to free up money and save toward retirement early instead of keeping your funds tied to your home. Cash-out refinances give you access to funds that you can use to boost your retirement savings or build up a college fund.

Mortgage Unity LLC

We bring a customized, unique approach to mortgages. Our lending solutions use the perfect hybrid of human-driven insights and technical prowess to process loans faster and significantly reduce costs.

PHONE

(978) 590-8200

E-MAIL

matt.silverman@mortgageunity.com

ADDRESS

67 Forest St. Suite 272
Marlborough, MA 01752

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Mortgage Unity LLC supports Equal Housing Opportunity. Company NMLS ID# 1843595 (www.nmlsconsumeraccess.org)| 508-974-8186. Mortgage Unity LLC is licensed by MA, NH, ME Broker License # MB1843595, Interest rates and products are subject to change without notice and may or may not be available at the time of loan commitment or lock-in. Borrowers must qualify at closing for all benefits. Mortgage Unity LLC is a Massachusetts limited liability company. 67 Forest St #272, Marlborough MA 01752.

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