Need to access liquidity, and want to take advantage of historically low interest rates? A cash-out refinance is a smart solution.
Through a cash-out refinance, you can tap into your home’s equity to access cash for whatever life has in front of you.
Sometimes life presents situations or opportunities where you need to have access to a large amount of liquidity. If that’s something you can relate to, consider taking advantage of a cash-out refinance. You can tap into your home’s equity to access cash that can be used on whatever needs are in front of you and your family.
What is a Cash-Out Refinance?
A cash-out refinance is a mortgage a homeowner takes out to replace their current mortgage. The goals of a cash-out refinance are often two-fold. The first goal is to lock in a lower interest rate and the second goal is to access liquidity through equity that’s already been established in the house. In a cash-out refinance, you’ll refinance your home to a lower interest rate, and change the remaining balance owed on your mortgage in order to access cash.
Here’s an example—you own a $200,000 home and still owe $120,000 for it—with a cash-out refinance, you could refinance the mortgage to $150,000 at a lower interest rate and receive a check for $30,000.
Benefits of a Cash-Out Refinance
Access to Cash
Cash-out refinancing is a great opportunity to access cash for whatever you need at a significantly lower interest rate compared to what you would be able to receive through a personal loan. Whether the money is for a semester of college, a wedding, or some other large expense, a cash-out refinance gives you options and security in being able to tap into the equity you’ve built up in your home.
Opportunity to Receive Lower Interest Rate on Mortgage
Not only will you be able to take advantage of accessing liquidity through a cash-out refinance, you’ll also be able to refinance your mortgage to a lower interest rate. With interest rates at a historic low, now is the best time to lock in a lower interest rate and start saving hundreds or thousands of dollars each year on your mortgage.
Raise Credit Score with Cash-Out Refinance
With a cash-out refinance, you can use the cash you receive to pay off high-interest credit card debt. By paying off credit card debt, you can improve your credit score and start saving money.
Mortgage Interest is Tax-Deductible
As long as you have a mortgage payment to make, you’ll always be able to write off the interest paid for your mortgage on your annual taxes, decreasing the amount of your taxable income. Talk with your tax preparer to discuss how a cash-out refinance could benefit your tax deductions.
Cash-Out Refinance FAQs
Is cash-out refinancing allowed on VA home loans?
Yes, cash-out refinancing is available for VA home loans. The VA offers very favorable terms when it comes to cash-out refinancing. They allow for the highest LTV, as you are allowed to take out up to 100% of your home’s equity in a cash-out refinance. Speak with a VA home loan expert to learn more.
How will a cash-out refinance affect my taxes?
As mentioned above, the interest paid on your cash-out refinance will be tax deductible, so your taxable income will decrease with a refinance. Additionally, the money you receive through a cash-out refinance will not count as income, since it’s still a loan that you will pay back over time.
Are there any limitations on what money from a cash-out refinance can be put toward?
No! One of the most popular attractions of a cash-out refinance is the flexibility that comes with the lump sum of money you receive. It is completely up to you to decide how the funds will be allocated. Many homeowners opt to use the money for college tuition, paying off high-interest debt, an emergency expense, or purchasing a car, but that’s the best part of cash-out refinances—you can use the money however you want.
How much money can I access with a cash-out refinance?
The general rule of thumb for a cash-out refinance is that borrowers can take out up to 85% of their home’s equity. The 85% LTV is provided through the FHA—if you want to do a cash-out refinance with a conventional loan, the maximum amount allowed is 75% of built-up equity. Even if you have already paid off your original mortgage, you are still eligible to take on a cash-out refinance to access equity built up in your home.
What’s the difference between a cash-out refinance and a home equity loan?
A cash-out refinance replaces your original mortgage, while a home equity loan is a separate loan that goes on top of your original mortgage. Your original mortgage remains untouched in a home equity loan. Interest rates are traditionally lower for a cash-out refinance than a home equity loan, where the interest rates are varying and adjust monthly.
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