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3 Situations Where Cash-Out Refinance Offers Might Be Right for Your Family

One of the many benefits of owning a home is building equity in it. Homeowners can tap into this equity with cash-out refinancing to pay for things like home renovations or debt that has high interest rates.

Review these three situations where cash-out refinancing offers might be the best solution for a family.

What is Cash-Out Refinancing and Is It Legitimate?

Cash-out refinancing is a type of home equity financing that pays off an existing mortgage and opens a new loan for the amount owed on the house plus the “cash-out” that was received. There must be equity in the property for cash-out refinancing.

The key characteristics of a cash-out refinance loan are:

  • Equity limits: Depending on state laws and internal policies, cash-out refinancing offers cannot exceed 80%-90% of the home’s value.
  • Interest rates: Cash-out refinancing generally results in higher interest rates, but they could still be lower than rates on a conventional mortgage from 10 years ago.
  • Loan balance: The new loan in a cash-out refinance will include the balance of the mortgage plus the additional equity that was taken out on the property.

Cash-out refinancing is a legitimate form of home equity financing. Where a home equity loan or home equity line of credit (HELOC) results in a second account to pay on, cash-out refinancing creates one lump loan to manage.

3 Situations Where Cash-Out Refinancing Makes Sense

Utilizing equity in a home can be a smart choice, but it can also put families at risk if they find themselves using it for the wrong reasons. There are three situations where cash-out refinancing might be the best choice for tapping into home equity.

1. Debt Consolidation

Debt consolidation is a practical use of home equity if done strategically. For example, if someone has significant credit card or tax debt that is accruing interest and penalties, cash-out refinancing could potentially eliminate the high fees and reduce the total amount paid on the debt.

It’s important to compare the costs of the outstanding debt with the total costs of securing cash-out refinancing offers to determine if there is money to be saved.

2. Home Renovations

Cash-out refinancing can be a critical tool for people that want to take on significant home renovation projects. This allows families to use the equity they’ve built in their property to pay for the renovations, and many of these renovations can increase the home’s value.

Adding a wood deck, for example, can yield a return on investment of 80%-85%, while a minor kitchen remodel can see a cost recovery of 75%-83%.

3. Lower Interest Rates

While cash-out refinancing rates might be marginally higher than home equity loans or HELOCs, they might still have lower interest rates than a conventional mortgage that was taken out during an economic recession.

Comparing interest rates is the best way to find out if this is an appropriate solution. Review cash-out refinancing rates as well as rates for other home equity financing options.

Finding the Right Cash-Out Refinancing Offers

Narrowing down the right home equity financing option takes time, but even more time should be spent finding the right cash-out refinancing offers. Look for mortgage providers that have access to a variety of lending options with reputable organizations.

Looking for the best cash-out refinancing offers for your situation? Contact Americas Funding Group to see how we can help you.