Buying a home is probably one of the biggest investments you’ll ever make, and you likely want to do everything you can to make sure your home is as comfortable and up-to-date as possible. But it can be tough to build up the necessary savings to complete home renovations and repairs.
Real Estate Term
Cash Out Refinance
A cash-out refinance may be your answer. It can help you accomplish your home improvement goals, so you don’t have to rely on credit cards, a personal loan or a second mortgage. A cash-out refinance can also help you use the money you’ve already paid into your mortgage to do things like cover repair bills, consolidate or pay off debt or even eliminate your outstanding student loans.
This article will walk you through the ins and outs of a cash-out refi so you can determine whether it’s right for you before you apply.
What Is A Cash-Out Refinance?
As your mortgage matures, you gain equity in your home. Equity refers to the amount of a home’s value that you’ve actually paid off. You can gain equity in two ways:
- Your home increases in value.
- You pay down your mortgage principal through your monthly mortgage payments. Every time you make a monthly payment on your loan, you gain a bit more equity in your home.
A cash-out refinance is a type of mortgage refinance that takes advantage of the equity you’ve built over time and gives you cash in exchange for taking on a larger mortgage. In other words, with a cash-out refinance, you borrow more than you owe on your mortgage and pocket the difference.
Unlike when you take out a second mortgage, a cash-out refinance doesn’t add another monthly payment to your list of bills – you pay off your old mortgage and replace it with the new mortgage.
When you refinance, you can do anything you want with the money you take from your equity. You can make repairs on your property, catch up on your student loan payments or cover an unexpected medical or auto repair bill. Cash-out refinances also usually give you access to lower interest rates than credit cards. If you need extra cash to cover expenses, a cash-out refinance could be a great option.
