We’ve previously talked about refinancing your mortgage in previous blogs. It is often a great tool to either adjust the duration of your loan or to take advantage of lower interest rates. Now, we’ll talk about another option that will leave you with quite a bit of extra money to spend as you please. In today’s blog, Family Home Loan Texas discusses the basics of cash-out refinancing and the ways it can help you free up cash.
Before we delve into cash-out refinancing, let’s review rate and term refinancing. The latter is most likely what you think of when you hear the term “refinance.” With this kind, you are altering the terms of your mortgage to — in most cases — receive a better interest rate. This is done when national interest rates drop a couple of percentage points below your existing interest rate. While you will have to pay closing costs again for this, lowering your rate will likely save you money in the long run. Overall, you are updating the terms of your existing mortgage to be more financially beneficial for you.
What Is A Cash-Out Refinance?
Instead of gaining a better interest rate, this option allows you to replace your mortgage with a new one while also gaining cash at the same time. In this case, your new mortgage amount will be higher than the previous one you signed when you first purchased your home. With this higher amount, you will pay off what is left of your previous one and pocket the difference; you can then spend this money as you see fit. This works because homes typically appreciate in value, so lenders are fine with providing larger mortgages — the home is now a more valuable piece of collateral. Overall, you are turning the equity you’ve already built into your home into cash for yourself.
How To Use It?
When proceeding with a cash-out refinance, you will be receiving a large sum of money. A lot of people use these funds to pay off higher-interest loans like credit cards. This can save them lots of money over time, especially because mortgage interest rates are so low in comparison. Many others also use this cash for large home repairs and renovations. Really, you can spend the money however you like, but it is typically advisable to do so in a way that either adds equity in your home or will allow you to get out from other debts.
Contact Us To Learn More About Cash-Out Refinancing
If you have questions about cash-out refinancing, we would be happy to answer any of them. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about how he and his team can help you through all aspects of buying a home — including cash-out refinancing.