Previous | Don’t Get Duped: How to Avoid Charity Fraud Next | How to save money at the grocery store
December 20, 2019 / David Bimler
The Ins and Outs of a Cash-out Refinance

The Ins and Outs of a Cash-out Refinance

Maybe you want to renovate your bathroom or pay down some high-interest debt but you’re having trouble building up the amount of money you need to make it happen.

A cash-out refinance may be the solution. It can help you fund your home renovation, so you don’t have to take out a personal loan, another mortgage or use credit cards.

What’s a cash-out refinance?

A cash-out refinance mortgage replaces your current mortgage with a new loan for more than you owe on your home. The difference between the two loans goes to you in cash, and you can spend it on whatever you want.

It’s different than a traditional refinance, which replaces your existing mortgage with a new one, usually with more favorable terms than the original mortgage, but for the same balance.

With cash-out refinancing, you are withdrawing a portion of your home equity or the amount of your home’s value that you own. Lenders limit how much you can withdraw to no more than 80 percent of your home’s equity. In other words, you can’t pull out 100 percent of your home’s value.

For instance, let’s say you still owe $200,000 on your house, and it’s worth $400,000. That means you have $200,000 of equity in your home. You can refinance your $200,000 mortgage for $320,000 and receive $120,000 in cash.

Why use it?spreadsheet with numbers, calculator and house key

A cash-out refinance gives your quick access to a lump sum of cash and could be a more attractive option than taking out a personal loan or an additional mortgage. It lets you tap the equity you’ve already earned to pay for home renovations that will boost the value of your home or pay off high-interest debt. And it could also fund urgent and expensive medical bills or car repairs.

What should I consider before securing a cash-out refinance?

Of course, there are some things to consider before committing to a cash-out refinance. You’ll have to pay loan closing costs which could include appraisal fees. Also, your loan terms may change, meaning that your new mortgage could take longer to pay off, your monthly payments may increase and your interest rate could go up.

Bottom line

A cash-out refinance may make sense if you’re using the money for a good reason and you can score a good interest rate on your new mortgage. Using the money for home improvements can boost the equity you’re taking out. But using it to fund a vacation or pay off credit cards and other debts can put your home at risk. Keep in mind that with a cash-out refinance, you’re using your home as collateral, so make all of your payments on time and in full.

David Bimler is the Assistant Vice President, Residential Mortgage and consumer Lending Sales Manager at F&M Trust.

 

Recent Articles
How to save money at the grocery store
How to save money at the grocery store

How to save money at the grocery store

June 19, 2024 / Lisa Hogue

Turning your hobby into a source of income
Turning your hobby into a source of income

Turning your hobby into a source of income

June 12, 2024 / Kia Treml

Is it time to sell your home?
Is it time to sell your home?

Is it time to sell your home?

June 05, 2024 / Katie Rittel

Seven tips to help you save for vacation
Seven tips to help you save for vacation

Seven tips to help you save for vacation

May 17, 2024 / Megan Witmer

Gig economy offers workers independence
Gig economy offers workers independence

Gig economy offers workers independence

May 14, 2024 / Shelby Yinger

Budgeting for home improvements
Budgeting for home improvements

Budgeting for home improvements

May 09, 2024 / Jenny Madden

What to know when starting a small business
What to know when starting a small business

What to know when starting a small business

May 06, 2024 / Natasha Koons

Tips for first-time credit card holders
Tips for first-time credit card holders

Tips for first-time credit card holders

April 23, 2024 / Chastity Wantz

What information do I need for my mortgage application?
What information do I need for my mortgage application?

What information do I need for my mortgage application?

April 17, 2024 / Mary Wright

Join our e-newsletter

Sign up for our e-newsletter to get new content each month.

NOTICE: YOU ARE LEAVING F&M TRUST!

You are now leaving the F&M Trust website. Links to third-party sites are provided for your convenience. Such sites are not within our control and may not follow the same privacy, security or accessibility standards as ours. F&M Trust neither endorses nor guarantees offerings of the third-party providers, nor is F&M Trust responsible for the security, content or availability of third-party sites, their partners or advertisers.