CASH-OUT REFINANCE: WHAT YOU NEED TO KNOW TO REACH FINANCIAL FREEDOM
Debt – it’s the four-letter word people do not want to talk about, even at a time when personal debt has reached new heights. In 2019, the average American collected more than $90,000 in debt with many financial obligations tied to high-interest credit cards, student loans and mortgages. It’s become a part of life and righteously so. Borrowing money is essential to our long-term financial goals – from funding education and career ventures to investing in a vehicle or finding a place to call home.
AS OF 2019, THE AVERAGE AMERICAN HAD COLLECTED $90,460 IN DEBT WITH GEN X (AGES 40-55), HAVING THE HIGHEST DEBT BALANCE OF OVER $135,000.
There’s a fine line between being fiscally responsible and managing expenses and finding yourself struggling to stay afloat in a pool of debt. For homeowners, it may feel like the latter – adding a mortgage payment and private mortgage insurance (PMI) costs to the list of monthly expenses. It’s imperative to identify the sources of debt and determine the amount owed. Understanding where and how much debt has been accumulated will help you begin the process of setting up a debt payment plan.
There are many proven ways to pay off debt – from creating and sticking to a budget to paying more than the minimum balance due or even halting credit card spending. Unfortunately, you may not have the luxury to stop spending altogether. Still, there is option you may not be familiar with that’s available to homeowners to take control of debt and plan for the future.
CASH-OUT REFINANCE SWAPS YOUR CURRENT MORTGAGE WITH A NEW ONE AT A HIGHER AMOUNT BASED ON THE EQUITY YOU’VE BEEN IN YOUR HOME OVER THE COURSE OF THE LOAN.
It’s called a cash-out refinance, but it’s not your standard home refinancing program. With a conventional refinance, you replace an existing home loan with a new mortgage equal to the remaining balance of the mortgage. For example, if you have $100,000 left on your mortgage and refinance, you would receive a $100,000 loan.
A cash-out refinance swaps an existing loan for a new one – with favorable terms -- but includes a larger balance than what is owed and based on the home’s equity. So, you could replace a $100,000 loan for a new one that equals $120,000 – using $100,000 towards your home and receiving the remaining $20,000 in cash at closing and using the money however you see fit -- debt consolidation, home improvement projects or save for the future.
How much can you save with cash-out refinancing? See your new monthly payment right now with Union Home Mortgage’s Refinance Calculator. Click here to begin calculating your home savings.
In other words, your home’s equity is converted into money and you pocket the difference between the original mortgage and the new one. However, there are limits to cash-out refinancing, as you cannot pull all of your home’s equity at once; instead, lenders will allow you to cash out 80-90% of the equity.
BENEFITS OF CASH-OUT REFINANCING
Get the cash you need to pay down debts and save hundreds, potentially thousands of dollars in credit card interest.
ADD HOME VALUE
From a kitchen makeover to an AC replacement, fund repairs and improvement projects to increase your home’s value.
INVEST IN YOUR FUTURE
Want to start a college savings account? Ready to save for retirement? Begin financial planning for life’s milestones.
A cash-out refinance provides much needed financial relief to tackle high-interest debt, such as credit card bills, monthly car payments and student loans, saving hundreds, potentially thousands of dollars in interest. Plus, when you pay off credit cards in full with cash-out refinancing, there’s an opportunity to increase your FICO score by reducing your credit utilization ratio – or the amount of credit made available.
DO YOU QUALIFY FOR A CASH-OUT REFINANCE?
To be eligible for cash-out refinancing, you need to have owned the property for at least six months and have a certain amount of equity already built into your home. Additionally, you’ll need to meet standard requirements of applying for a home loan, including credit score and debt-to-income (DTI) ratio.
HOW MUCH MONEY IS AVAILABLE TO YOU WITH CASH-OUT REFINANCING?
If you need funds to pay off high-interest debt or want to invest in home repairs or renovations, consider tapping into your home’s equity with cash-out refinancing. Speak with Union Home Mortgage today and explore your options to see if a cash-out refinance makes financial sense for you.