Interested in renovating your home or making an expensive purchase but you don’t have the extra cash on hand? A cash-out refinance is a great way to get equity out of your property so you can make purchases without creating new debt. A cash-out refinance is also a great way to help pay off existing debt.
When you get a cash-out refinance loan, your new loan amount adds up to be more than your current mortgage. That way, at closing you’re able to take the difference between the two amounts as cash and spend it however you choose.
Why You Should Consider a Cash-Out Refinance
There are many reasons why a cash-out refinance is a great option for you and your family. Reasons to consider a cash-out refinance include:
- Use the money for home improvements
- Lower monthly mortgage rates
- Consolidate debt
- Use the money for investments
- Help pay for college
- Pay for medical expenses not covered by insurance
Since a cash-out refinance takes advantage of the equity you’ve built up, you can get a loan for more than what you currently owe for your mortgage. This leaves you with a nice chunk of difference in cash to help you cover your expenses and debt.
How a Cash-Out Refinance Works
Over the past few years since you’ve been making payments on your mortgage, there’s a good chance the market value of your home has increased. If the remaining value on your mortgage is $100,000, you could refinance and get a new mortgage for $125,000. The benefit of this means you get to take the difference of $25,000 and you also get a new mortgage rate. The new rate lowers your monthly mortgage payments.
Similar to a traditional loan, there are closing costs with a cash-out refinance loan. You will also pay interest on the full amount of the mortgage. It’s important to talk to a mortgage specialist to fully understand all of the fees and expenses that come with any form of refinancing so you can make the best decision for your needs and budget.
Requirements for a Cash-Out Refinance
When it comes to getting a cash-out refinance, there are some eligibility requirements. First, you must make on-time mortgage payments for at least 12 months and have at least a 20 percent equity in the property. The maximum loan-to-value ratio for a primary residence mortgage is 80 percent. This means that up to 80 percent of the home’s equity can be taken in cash. The minimum credit score for a cash-out refinance of a conventional mortgage is 620, while an FHA backed loan allows for a minimum credit score of 580.
At BrightPath, we offer cash-out refinance mortgages along with a wide selection of other mortgage options to perfectly suit your lifestyle and budget. If you feel you and your family can benefit from a cash-out refinance, give us a call today at 888-222-6003 or complete our online form so one of our experienced mortgage specialists can help you decide if cash-out refinancing is right for you.
