How Can I
Use The EquityIn My Home?
How Can I
Use The EquityIn My Home?
What is Cash-Out Refinancing?
Cash-out refinancing replaces your existing mortgage with a higher loan amount, allowing you to take advantage of the equity accrued through appreciation and paying down your loan through regular monthly payments. It provides access to the difference between the two mortgages (your current one and the new one) in cash. The cash can be used for paying off credit cards or other debts, home improvements, or essentially any purpose that requires money.
For example, say the remaining balance on your current mortgage is $200,000 and the current value of your home is $400,000. You have $200,000 in home equity. Lenders generally require you to maintain at least 20 percent equity in your home (though there are exceptions) after a cash-out refinance, so your maximum loan amount is $320,000. You have $120,000 to utilize as cash through a cash out refinance. You’ll also need to pay for closing costs like the appraisal fee, so the final amount could be less. Closing costs can be financed or paid in cash.
There are a few things to consider when determining if a cash out refinance is for you.
- There are minimum credit score requirements. The higher the score the easier it is to qualify for a cash out refinance.
- Determine how much you need. For instance, if you intend on paying off debts/credit cards, obtain payoff balances or statements which reflect the remaining balance. If you intend on completing home improvements such as a remodel, obtain project estimates from contractors.
- The interest rate could be higher or lower than your existing rate. You also may be able to consolidate debt and shorten your term by continuing to make the same total sum of payments towards your new mortgage. On the other hand, you may need to extend your term to a new 30 year term to afford the monthly payment
- A mortgage appraisal is required for a cash out refinance loan and the appraised amount will determine your equity position.
- There is a 3 day rescission period after closing. This means you have 3 days to change your mind and back out of the transaction. However, this also means that the cash funds are not available to you until 3 days have elapsed.
*By refinancing your existing loan, your total finance charges may be higher over the life of the loan. Copyright©2022 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-866-912-4800. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Opportunity.
It’s important that you consult your mortgage loan advisor to determine if it’s the right time to do a cash out refinance. At the Fairway Heartland Branch we will provide your options, help you weigh those options out, and empower you to make the best financial decision.
We will also advise you if it just doesn’t make good financial sense or there are better options. You can count on us to do the right thing every time.
