If your home’s equity (value) has been building over time, you may be able to get a cash-out refinance allowing you to turn a portion of that equity into cash — cash you can use however you want. Consolidate debt, home improvements, unexpected medical bills, a child’s college education, or investment properties are all realistic possibilities.
So how does a cash-out refinance work? Let’s say you still owe $200,000 on your home, but its value on the market is worth $300,000 now. That means you’ve generated $100,000 in equity. You can use a cash-out refi and use part of your equity. You would have a new larger mortgage with new rates that may mean you pay more in interest over the lifetime of the loan.
How is a Cash-Out Refinance Different than a HELOC?
Simply put, a cash-out refinance loan is a new mortgage loan that replaces your original mortgage, while a HELOC (Home Equity Line of Credit) is a separate loan that becomes a second mortgage in addition to your current original mortgage.
Does a Cash-Out Refinance Make Sense for You?
It depends on your situation. Start by weighing the benefit of how you plan to use the money against the impact it will have on your mortgage rate, term and payments. A cash-out refinance can be a smart decision when the money is used to invest in appreciating assets, such as home improvements, education, investments or your overall financial security. On the other hand, it might not be worth it if the numbers don’t add up to a significant financial benefit.
Want to explore your options? Feel free to contact a PrimeLending Home Loan Expert today who can help answer any of your questions or get your process started.