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.
For more details please visit us at www.americamortgages.com