The cash-out refinance option has grown popular among consumers with strong equity. With cash-out refinancing, the owner pays off the existing mortgage and replaces it with a new mortgage that includes the amount of cash extracted against the equity. Paying off higher interest and getting a lower interest rate is just one great reason why a cash-out refinance may be right for you. Here is a breakdown of why cash-out refinancing may be the right option for you when refinancing your home.
6 Reasons to Consider a Cash-Out Refinance
#1: Lower Interest Rate
Refinancing your mortgage generally allows you to snag a lower interest rate than a home equity line of credit or a home equity loan. Cash-out refinances make even more sense if the interest rates have lowered since you first purchased the home. For example, say you bought your home in 2003 and the average mortgage rate was at 9%. Today, the average rate is 4.3%, so it would make sense to refinance your home to gain that lower interest rate. If you are in need of cash and want to score that lower interest rate on your mortgage, cash-out refinance is a great option for you. If you only want to lock in a lower interest rate on your mortgage and want to forego the cash, then regular refinancing will make more sense.
Cash-out refinancing can provide you with a large lump sum of money that you can spend however you’d like. You can pay off your car loan, remodel your home, get rid of medical bills, pay off student loans – the choice is yours. This lump sum is a great benefit to cash-out refinancing because you will gain your equity in cash and you will more than likely have a lower interest rate. This money is free for you to spend however you’d like.
If you have kids or are planning on having kids or getting married in the future, this money can go toward a wedding, college fund, or any other necessary finances. Even if you don’t have big plans to spend your lump sum, just having financial security is enough for you to want to do a cash-out refinance for your home and you can never take too many vacations!
#3: Easy to Qualify
In most cases, it is much easier to qualify for a cash-out refinance because you already own the home and more importantly, you owe less than the home is worth, meaning you aren’t upside down in your home. The process for doing a cash-out refinance is simple and easy because you have already gone through the home buying process and you already own your home, cash-out refinancing allows for you to benefit from your home purchase easily. Lenda’s simple process will ensure that your refinancing is seamless and quick.
#4: Pay off Debt
Refinancing your mortgage can help you pay off high-interest credit card debt. If you have a balance of $30,000 on multiple credit cards at a high interest rate like 14.9%, and you only make the minimum payment each month – 2% of the entire balance – it would take you more than 40 years to pay off the credit cards. You would also end up paying $48,555 in interest charges, adding debt on debt.
If you do a cash-out refinance on your home, you can use the lump sum you receive to pay off that credit card debt. If you had a 30-year fixed mortgage at 5% interest rate, your payments would be $161.05 each month and you would wind up paying almost $28,000 on interest charges over the lifetime of the loan, which is a little more than half of what you would on the credit card debt.
#5: Credit Score
If you want to pay off your debt quicker and save money on interest, then you can make extra payments every month. By using the lump sum of money from cash-out refinancing toward paying off your credit card debt, you are boosting your credit score and improving your debt-to-income ratio, which is what banks will look at when deciding whether to give you a mortgage loan for your potential new home down the road.
Boosting your credit score can allow you to gain better interest rates on future credit cards, cars, homes, etc., and will help you qualify for better deals.
#6: Tax Deductions
Home loans offer a big tax advantage. If you refinance or take out a home equity loan, the interest paid on these loans is tax deductible. Some of your closing costs are also tax deductible. Unlike credit card debt, mortgage interest tax is indeed deductible. This allows you to reduce your taxable income and could mean a bigger tax return. This bigger tax return is another great form of extra income you can use to pay off your current debts, save for a vacation or redo your kitchen.
Lenda Makes Cash-Out Refinancing Simple With 4 Steps:
- Custom Quote – We ask you questions and quote you accurate fees up front to get you the right quote for your specific situation.
- Submit Your Application – We make completing your loan stress-free using our fast online application process. You can refinance from start to finish from the comfort of your very own home.
- Verify & Document – You’ll never have to deal with endless documents and too many trips to the bank. You can verify your credit scores and upload your documents through your secure portal.
- Close Your Loan – Once you’ve been approved, we will underwrite, appraise and close your loan 3 times faster than the industry average. You’ll enjoy a fast close so you can get back to living life.
Does cash-out refinancing sound like it fits into your financial plan? If you are looking to lower your interest rate, pull out your equity to pay off debt or just want to remodel your home, then use Lenda today to get started on your refinance. It’s simple, easy and efficient.