Many people don’t know that there are two main types of mortgage refinancing. Rate-and-term is a type of refinance in which a borrower wants to secure a better rate or term for long-term savings. Cash-out refinance, the topic of this week’s blog from North Georgia Lending, is the replacement of an old loan with a new, higher-value loan and in which a client receives cash for the difference. Here, we’ll look closer at what cash-out refinance is, who it’s for, and how it may benefit you. If you’re interested in learning more about this or any other mortgage topics, contact our team in Cumming, GA, today to schedule a consultation.
What is Cash-Out Refinance?
Cash-out refinance allows homeowners to access the equity they have built in their homes. It’s only available, in fact, to clients who have a large amount of equity. If you don’t, you may be more interested in rate-and-term refinancing, but you will not be eligible for a cash payment.
If you are eligible for cash-out refinance, you’ll receive the difference between your new mortgage and your home’s value in cash. You usually can only borrow up to 80 or 90% of the value of your equity. So that means, if your home is worth $200,000 and you have $100,000 in equity, you can do a cash-out refinance for a new loan of $190,000 (approximately $90,000 of which is given to you in cash).
Usually, cash-out refinance not only has the benefit of cash in hand, but also of lower interest rates. If you bought your home at a time with high interest rates, it’s likely that you may be able to secure lower rates by refinancing now.
Who Uses Cash-Out Refinance?
Cash-out refinance is one of several types of lending to consider if you’re in need of cash. It’s important to look at other home equity loans and even personal loans to make sure you’re securing the best interest rate if you need cash in hand. Cash-out refinance is a good idea only if you have a specific purpose in mind for the use of your funds. That is: home repairs, home improvements, accessibility improvements, a tuition payment, paying off higher-interest other debts, and more.
It’s important to take note of a few things if you’re considering a cash-out refinance:
- You risk your home to foreclosure if you default on your loan. This doesn’t really increase your risk since you’re paying a mortgage payment now, but you will have to make payments for longer with a cash-out refinance.
- You will pay closing costs when you close this and most other types of refinance.
- You will have to pay private mortgage insurance if you borrow more than 80% of your home’s value (i.e., have less than 20% equity in your home).
Get Started Today
The mortgage professionals at North Georgia Lending are here to walk you through cash-out refinance and other types of lending solutions if you’re in need of cash. Contact us in Cumming, GA, to talk more, schedule a consultation, and even get a free quote.