Cash-Out Equity Release. Is now the time?

Cash-Out Equity Release - America Mortgages

There’s something about having cash on hand that feels empowering. Being able to invest in projects, equities, crypto, or a business opens up endless possibilities. It could be to pay off high-interest debt or taking the family on a dream vacation before the children get too old. We hear this daily when speaking to clients that are considering cash-out refinancing.

What is a cash-out refinance?

A cash-out refinance is a mortgage refinancing option in which an old mortgage is replaced for a new one with a larger amount than owed on the previously existing loan, helping borrowers use their home mortgage to get some additional liquidity. You get the difference between the old mortgage and the new and the money can be used however you like. The amount received depends on the equity built up in your property.

How does it work?

Cash-out refinancing depends on several factors which include the value of the property, the amount owed, and how much you can qualify to borrow. Your America Mortgages loan officer can help you determine if this type of financing makes sense from a cost basis.

The potential benefits of a cash-out refinance

  • 1. A lower interest rate on your mortgage – Let’s say you bought your home when mortgage rates were much higher. Refinancing your home can improve your financial situation if you are able to obtain a lower rate.
  • 2. Debt consolidation – The money from a cash-out refinance can be used to pay off other high-interest debts, like credit cards and college loans. This could save you thousands in interest in the long run.
  • 3. Credit score improvement – Building on the previous point, paying your credit card debts off in full using a cash-out refinance can build your credit score by reducing your credit utilization ratio.
  • 4. Tax deductions – If you’re looking to improve your home using the cash from a cash-out refinance, you could potentially qualify for mortgage interest deduction.
  • 5. A cheaper way of paying for your kid’s education – It’s every parent’s dream to be able to put their kids through college, but high-interest student loans can be extremely stressful. Using a cash-out refinance can be a good alternative if the rates are lower.
  • 6. Inheritance – Although we advise you to speak with your attorney or tax advisor, it may be possible to reduce the amount of inheritance tax when estate planning with increased leverage.
  • 7. Take advantage of an opportunity – With the current situation with Covid, there are a lot of opportunities that may not be available once the world goes back to “normal”. Having access to liquidity and being able to act immediately can be potentially life-changing.

So, should you do it?

The truth is, cash-out refinancing can be a good way to improve your financial situation – we think of it as an affordable way to borrow money if you own substantial equity in your home. The money from a cash-out refinancing can even be used to rebuild equity that you’re taking out if you decide to use it on value-adding home renovations.

Interested in cash-out refinancing? America Mortgages has a 97% approval rate for both U.S. Citizens & Foreign Nationals. That is our sole focus and our expertise.

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What is an ‘Adjustable-Rate Mortgage (ARM),’ and how is it used?

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An adjustable-rate mortgage (ARM) refers to a mortgage with variable interest rates, which change regularly after an initial period. It fluctuates with the market interest rates, offering either a financial gain or loss to the borrowers. This is in direct contrast with the fixed-rate mortgage rules that impose a fixed interest rate for the entire repayment period.

Each ARM loan has an introductory period from 3 to 10 years where the interest rate stays lower than that of any fixed-rate mortgage. It’s possible to save a lump sum of money if you can settle the loan within that primary window.

After the initial fixed-rate period, an ARM’s interest rate will depend on the current market rates, meaning the rates can rise or fall over the mortgage’s remaining course. The lender will revise the rate at regular intervals, possibly once a year, and adjust it to the current market rate until the end of the term. To avoid paying extra money in rising interest, you can either sell the house or refinance the loan.

America Mortgages offers standard 5 and 7-year adjustable-rate mortgages (ARM) that you can qualify easily without going through much paperwork. You can also refinance if your home’s market price is at least $150,000 or pull out cash of the home equity.

An ARM might be the right choice if you can pay the loan off during the initial cap or don’t plan to live in the same house for your entire life. Ask the lender about the loan’s margin, the factors related to rate changes, and the intervals of rate changes to see if you can afford the calculated monthly installments.