Using Your Cash Your Way: A Quick Guide to Cash Out Refinance

When it comes to refinances, many feel like all the rules and restrictions of borrowing can be cumbersome. This is especially true for homeowners who find the perfect place, but it just needs a few minor repairs. Many have the borrowing capacity leftover to make changes, but don’t have the cash on hand to make it happen. All the rules and restrictions of the lending process can make it hard to get that cash, even when we know that simple updates to a home can increase its value by thousands of dollars. Unfortunately, the supplies used to make those changes can cost a pretty penny. Cash out refinance is a great way to get the necessary cash to update your home. Similarly, homeowners looking to open a start a new business venture, consolidate debt, buy a second home, or prepare for retirement can all benefit from a cash out refinance. This week, we’re getting the skinny on cash out refinances, their benefits, and their disadvantages.

What is cash out refinance?

Cash out refinance is a way for homeowners to take some of the equity out of their home and turn it into cash that they can use as they need it. As many homeowners found out during the housing crisis in 2008, your home’s value is not finite, so getting cash out is great when your home’s value is high. That’s why so many people use the funds from a cash out refinance to make updates; it’s basically a way to take money out and make it back plus more very quickly (in equity, not cash) because they’ll likely get more money out of the home when it’s time to sell. In fact, 34% of all refinances in the second quarter of 2015 were cash outs, which accounted for the $11.7 billion of total home equity cashed out during that same quarter according to Freddie Mac’s Refinance Report Archive.

Benefits of cash out refinance

A cash out refinance can be a great option for some homeowners. They provide an opportunity to protect against market downturn by diversifying a homeowner’s holdings if they decide to purchase new property or start a new business. They can also be used, as we mentioned, to quickly increase the value and appearance of a home. The best way to add equity back to your home quickly is by updating it, and that process is made easy with cash out refinancing. No matter the reason for the refinance, cash outs allow homeowners to turn their equity into cash for their own use, typically with a lower interest rate than HELOCs or home equity loans can provide.

Cons of a cash out refinance

There are a few disadvantages to cash out refinancing, unfortunately. You will have to change the terms and, obviously, the amount of your current mortgage, so be prepared for a slightly higher payment. Depending on where you refinance, there may also be more stringent qualifications since cash out refinancing is riskier for lenders, so a high credit score and solid repayment history can help you get the most cash value out of your equity. Also, if you’re using the cash to consolidate credit card or other debt, be wary. Gambling, taking large financial risks, or planning an extravagant vacation may not be the best use of funds. Remember, when you get a cash out refinance, your home is basically used as collateral which you use to borrow cash, so be careful how you choose to spend that money.

Ready to look into cash out refinance options? Contact Oceanside Mortgage today to talk with an expert about putting cash back in your pockets!