Homeowners

Cash in on Home Equity with Cash-Out Refinancing

There are several reasons for wanting to tap into your home equity. You may want to use some of the money invested in your home to eliminate other debts, like credit card balances, or to contribute to your children’s college tuition bills. Perhaps you’re looking to self-finance home improvement expenses or pay medical bills. You may even prefer to use it to fund vacation homes, a rental property, or start a business.

In most cases, accessing home equity offers an option for accomplishing more of your financial goals. Determining whether it makes sense for you involves looking at the alternatives and finding the most cost-effective approach for your situation. For many homeowners, cash-out refinancing ends up being that choice.

Like home equity loans and home equity lines of credit (HELOCs), cash-out refinancing is another way of tapping into the equity you have built up in your home through your monthly payments and as it has increased in value. It involves retiring your current mortgage by taking out a new one, possibly with different terms, and for an amount that is larger than what you currently owe. The excess over your old loan’s outstanding balance and the new one is then paid out to you in cash at closing.

Many homeowners see this type of refinancing as an effective way to secure more favorable terms on their debt while obtaining extra money for large purchases, college expenses, home improvements, or other pressing needs.

A Cash-Out Refinance Could Help You:

• Access a large lump sum of cash
• Pay off high-interest credit card debt
• Pay off a car loan
• Pay student loans
• Pay off medical bills
• Finance a wedding
• Take a vacation
• Make home improvements
• Pay for elderly care
• Buy an investment property
• Pay for college
• Pay down debt and improve your debt-to-income ratio
• Boost your credit score
• Get a lower interest rate

Special Benefit for Veterans

Cash-out refinancing can be especially attractive to homeowners who qualify for VA-backed loans. The VA will guarantee these loans up to 100 percent of the home’s value. With the VA standing behind the loan, the lender can typically offer more favorable terms. This type of loan can also be used to refinance a non-VA loan into a VA loan.  Another benefit: VA loans are not subject to down payment limits or private mortgage insurance (PMI). You can check to see if you qualify for a Certificate of Eligibility here.

As always, you’ll want to weigh the impact of your choices on your overall financial circumstances and goals before taking action. However, if you are looking to improve your financial flexibility—and the numbers add up in your favor—a cash-out refinancing could help you pursue long-term financial goals that take you beyond homeownership.