Three Problems you can solve with a cash-out refiance

(Last Updated On: June 12, 2017)

Cash-out Refinance for your homeInterest rates on cash-out refinances are still hovering around record lows and home values in many parts of the country have increased.  In this environment, a cash-out refinance of the equity in your home may make sense for you and your family.

 

What is a Cash-out refinance mortgage?

Your answers about cash-out refinancing questions answeredA cash-out refinance mortgage is where you pay off your old mortgage by getting a new mortgage with a higher balance.  The difference between the old loan and the higher-balance new loan is called “cash-out.”  That’s because you’re walking away from the new closing with cash.

When considering a cash-out refinance here are three problems that you may be able to solve by tapping the equity in your home.

Three Great Reasons to consider a Cash-out Refinance

  • problems solved with a cash-out refinancePay off other debt that may carry a higher after-tax interest rate. For example, the interest on up to $100,000 of cash-out proceeds may be tax deductible if you itemize your deductions and if you’re not subject to the Alternative Minimum Tax (AMT).  Please reference IRS publication 936 and see a CPA or tax advisor for more details.
  • Prepare for a large upcoming expense – increasing your mortgage balance could be a budgeting strategy if you have a large upcoming expense that would otherwise cause you to go into credit card debt. These expenses can include unexpected medical bills, new furniture or major appliances.
  • A payoff of Student Loan debt.   A new Fannie Mae program announced earlier this year may make it possible for you to reduce your student loan debt.

I’ve heard that I can use a Cash-out refinance for home improvements, is that True?

How to tell if refinancing my home is the right moveIn a word yes, you may use a cash-out refinance to pay for home improvements or renovation.  However, for home improvement, there is a better way than to do a cash-out mortgage and that is the Home Renovation loan.  Keep in mind that there are some home improvements that may add to the value of the home or at least help you maintain its value. These may include an addition to the house, a new kitchen, and upgraded landscaping.  For more information see our article on home improvement loans.

The great thing about today’s low-interest rate environment is that your monthly payment on the new mortgage may end up being very close to what you’re paying right now.  Please contact us for more information or to run the numbers for your specific situation!

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