This week, we continue our theme of “spruce up your curb appeal” with another loan option that could help you with your summer renovation projects – Cash-out refinance. With a cash-out refinance, the homeowner’s current mortgage is replaced with a new loan that has a higher loan amount. The difference in what is currently owed and the new loan amount is then given to the homeowner in cash. This can be a great option when deciding to update your home, but unlike the renovation loans we wrote about last week, you are not limited in what you can use your extra cash on. This option is more versatile so you are able to use your funds where and when you need them.
How a cash-out refinance works
As stated above, a cash-out refinance allows you to refinance your mortgage for more than you currently owe, then pocket the difference. This results in an entirely new first mortgage. For example, if you still owe $75,000 on a $200,000 loan and you want to do $25,000 in renovations, you can refinance your loan for $100,000. Ideally, this will result in a better rate for your initial $75,000 loan and $25,000 in your pocket to complete your renovations. Since this is an entirely new mortgage, there would be closing costs involved as well.
Getting additional funds to complete a renovation project is not the only reason to get a cash-out refinance. If you can refinance at a lower interest rate, you can use the cash you get back to pay off high interest debt (like credit cards and student loans). You’ll still owe the original debt amount, but you’re now making payments at the lower interest rate, which can save you thousands of dollars in the long term. Mortgage interest payments are also tax deductible, so rather than using credit to complete your home improvement projects, you could get more money back on your tax returns. Some other ways you can use your extra cash include paying college tuition, purchasing a second property or making an investment, or creating an emergency fund.
Keep in mind, a cash-out refinance does not come without risks. If housing values drop, taking out equity could result in you owing more on your home than it is worth. You are also at a higher risk of defaulting on your mortgage, which would ultimately lead to foreclosure on your home. Make sure that whatever you intend to use your cash for is a solid financial investment and will bring you more value in the long run. Consult your loan officer if you have questions or would like to know more about the benefits and risks of a cash-out refinance.
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ABOUT INLANTA MORTGAGE
Headquartered in Brookfield, Wisconsin, Inlanta Mortgage is a growing mortgage banking firm committed to quality mortgage lending, ethical operations and strong customer service.
Inlanta Mortgage offers Fannie Mae/Freddie Mac agency products, as well as a full suite of jumbo and portfolio programs. The company is an agency approved lender for Freddie Mac and Fannie Mae, FHA/VA, FHA 203K and USDA. Inlanta Mortgage also offers numerous state bond agency programs. Review Inlanta’s mortgage loan programs.
Inlanta Mortgage was recently named a Top Workplace for a third time in 2015. Inlanta has also received the Platinum Million Dollar USDA Lender Award and has been recognized as a Top Mortgage Employer by National Mortgage Professional and a Top 100 Mortgage Banking Company and 100 Best Mortgage Companies to Work For by Mortgage Executive Magazine.
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