Homeownership provides a slice of the American Dream. It enables you to control one of the largest assets within your portfolio of investments. Among a myriad of advantages, you may also have an opportunity to borrow against the equity in your home via a cash-out refinance.
Refinancing replaces your existing mortgage with a new loan that features more attractive terms. For instance, if mortgage interest rates are less than you currently pay, obtaining a new home loan could reduce your monthly housing expenses. Refinancing may also enable you to extend your mortgage term to 30 years or to reduce your mortgage term to 15 years. Other time frames, such as a 20-year fixed-rate mortgage or a 10-year fixed-rate mortgage may be considered to meet your retirement goals.
When you refinance your home loan for an amount that exceeds the existing loan balance, you receive the proceeds for the difference. For instance, with an existing loan balance of $200,000 and a new loan amount of $250,000, you would receive a cash-out amount of $50,000.
Is Refinancing a Good Idea?
Refinancing might be an excellent idea if you leverage the transaction to your advantage. When the proceeds are wisely used, the benefits from a cash-out refinance may be quite rewarding.
Financing for Home Improvements
A major remodeling typically generally requires a large amount of money for the improvements. Oftentimes, the cost for materials and labor are more than a homeowner anticipates. Last year, the cost for a major kitchen renovation was more than $63,000.
Using several credit cards to pay for home improvements would create larger monthly payment obligations. While, a home equity loan could be used to finance your improvements, the interest rates are generally more costly than refinancing to obtain a low-rate home loan.
Securing a cash-out refinance to pay for home improvements will result in a single mortgage payment versus paying for several credit cards or toward a home equity loan. In some instances, you might be able to obtain a lower mortgage payment, while getting cash from the refinancing transaction.
Additionally, when money from a cash-out refinance is used toward home improvements, you might be able to deduct the interest expense. If the combined purchase price for your home and the costs for home improvements are $750,000 or less, you may be eligible to write off the interest expense (speak with your tax adviser to determine if this applies for your situation).
Get a Cash-Out Refinance to Consolidate Debt
An assortment of debts that range from credit cards, personal loans, installment loans, furniture bills or a second mortgage could consume too much of your monthly earnings.
When you are required to pay a few hundred dollars toward several debts each month, a cash-out refinance might significantly lower your monthly expenses. By using the equity within your home to combine your existing mortgage loan with other debts, you will have fewer obligations to manage.
Improve Your Credit Score With a Cash-Out Refinance When the money from a cash-out refinance is used to pay off revolving and installment debts, you might also improve your credit score. Since credit utilization is a scoring factor, balances that are paid off or significantly paid down will lower your credit usage-to-availability ratio.
Contact Prospect Financial Group today at (858) 605-0952 to speak with a licensed mortgage professional about refinancing your home loan
Prospect Financial Group
948 Garnet Avenue
San Diego, CA 92109
NMLS: 349089 | BRE: 01837707
Jason Vondrak has been in the mortgage industry since 2004 and co-founded the mortgage brokerage Prospect Financial Group in 2006 in San Diego, California. Today he serves as President and CEO of Prospect Financial Group and the president and founder of Prospect Property Group, a real estate development company, established in 2012.
“I’ve had the privilege to serve in an industry that exists to ensure homeownership remains among the top priorities of government and citizens alike. Over the years, it has been a pleasure working alongside homeowners, real estate professionals, and business associates combining efforts and teaming up to help homeowners realize the dream of home ownership.”