There are many reasons that someone may wish to refinance their mortgage. With today’s home values rising sharply, an increasingly popular reason is to borrow against a portion of the equity in your property to convert it to cash. This is commonly referred to as a Cash-Out or Cash-Out Refinance. Even as interest rates rise, there are still many ways that a cash-out can be beneficial to you. Read on find out how a cash-out refinance can be beneficial to you.
Benefits of Cash-Out Refinance
In most cases, the equity from a cash-out can be used for just about anything. Some typical uses are debt consolidation, home improvement, vacations, college, investments, recreational vehicles, automobiles, etc. The amount of cash that can be accessed is limited to the buyer’s debt-to-income ratio and the current value of the property. Different states have different requirements to the amount of equity that can be accessed. Texas, for example, is limited to 80% of the current appraised value. You do not have to borrow all that is available to you but, if you decide that you need more after you close, then you will have to refinance again to access more.
Lower total interest cost
The decision to access the equity in your home is a very personal one; however, in many cases, borrowers choose to do a cash-out refinance because the interest costs can still be much lower when compared to credit cards, personal loans, home improvement loans, HELOCs (Home Equity Line of Credit), or 2nd mortgages. Once the cash out is funded, they can apply the funds to those other higher-interest loans and pay them off. Careful planning and strategic reduction of non-mortgage debt can help to increase your credit score for future purchases with credit as well.
Potential to decrease taxable income
Interest paid for mortgage loans is typically tax-deductible and borrowers may be able to write off the interest paid from their taxable income. Credit Card and personal loan interest cannot be written off.
Simplify monthly payments
When compared to making several payments to credit cards and/or personal loans, some borrowers find that making one simple monthly payment makes it easier to ensure payments are on time and reduces stress.
Borrowers that had an FHA loan or a conventional loan with PMI (Private Mortgage Insurance) could also benefit from lower costs as these are not required when the LTV on the property is 80% or less. In some cases, this can remove hundreds of dollars per month!
It may sound complicated, but the cash-out refinance is a relatively simple process. Once you qualify with a loan officer, our processing team will go to work to get your loan funded. Once funded, the title company will wire funds to pay off your former mortgage lien and, if applicable, wire the excess funds directly into your account. It is important to understand that the borrower must meet the requirements in the market today for creditworthiness, asset valuation (if required), and income level.
Contact a loan officer at Rock Mortgage today to go over your options and discover if this valuable financial tool is right for you.
How a Cash-Out Refinance Can Be Beneficial | Rock Mortgage — Houston, Texas