Homeowners across the United States have seen an increase in their home equity over the past few years. In fact, the amount of U.S. “tappable” home equity was at a record $9.1 trillion in October 2021, with the average mortgage holder having about $185,000 in home equity!
So, what can all this equity offer eligible homeowners? A home equity cash out refinance! Check out how this type of refinancing works, what you can use it for, tips for getting the best deal, and more, below.
How a Home Equity Cash Out Refinance Works
First, let’s answer this question: “What is home equity?” Home equity is how much your house is worth above and beyond what you owe on your mortgage. If your home is worth $400,000, and you still owe $200,000 on your mortgage, you have $200,000 (or 50%) in equity.
A home equity cash out is a mortgage refinancing option that lets homeowners tap into this equity, converting it to cash. The homeowner takes out a new mortgage, which is greater than their previous loan balance. The new loan pays off the first mortgage, and the lender pays the remaining amount to the borrower in cash after closing. Then, the homeowner is responsible for making monthly payments towards the new mortgage.
Ways to Use a Home Equity Cash Out Refinance
Here are three ways a home equity cash out refinance is commonly used.
Home Improvements
A cash out refinance is an excellent way to access your home’s equity to pay for home repairs and upgrades. You can use the cash to upgrade your kitchen, replace your roof, add a wraparound deck, add energy-efficient features, or complete any other renovation you want.
Paying Off Debt
Many borrowers use a home equity cash out refinance to pay off existing debt. A refinance can be beneficial if your current credit card interest rates are high. Some borrowers also use the money to pay medical bills, student loans, or other debt. Consolidating the debt into your mortgage payment helps many homeowners reach their financial goals.
Investing in Other Opportunities
This loan can benefit borrowers who need cash to invest in other opportunities. What kind of opportunities can you invest in? We’re glad you asked! Here are just a few:
- Real estate investing
- Investing in the stock market
- Higher education investment
- Investing in a new business venture
Factors to Consider Before Getting a Home Equity Cash Out Refinance
A great place to begin is by asking yourself these questions and reaching out to an expert mortgage team like Team Hadley at Fairway Independent Mortgage for guidance.
- What’s my credit score? Credit scores below 600 can make it harder to refinance your home. If you are planning to apply for this type of loan in the future, start working to improve your credit score now.
- What is the current interest rate environment? If interest rates are lower than your current rate, a home equity cash out refinance may be an excellent option.
- How much money do I need, and how much equity do I currently have? Write down how much cash you need and approximately how much equity you have in your home. See if the two numbers work together to make your goals possible.
- How long do I plan to stay in my home? If you plan to move in six months, there might be better options than a home equity cash out refinance.
- How will this affect my monthly payments? Review your finances and ensure that refinancing aligns with what you can afford monthly.
- Are there any tax advantages? If you use the money from a home equity cash out refinance to remodel or renovate your house, you may be eligible for a tax deduction.
Tips For Getting the Best Deal on Your Home Equity Cash Out Refinance
Are you curious about how to choose the best home equity cash out refinance loan for your needs?
An excellent first step is to contact only reputable lenders like Fairway Independent Mortgage. Don’t be afraid to compare several lenders to see who can offer you the best deal. Ask about their interest rates, fees, and loan terms. Use caution if you get any unsolicited offers for home equity cash-outs by phone, email, or mail.
To get an accurate quote from a lender, you will probably need to provide the following information:
- Your home’s purchase price and its current estimated value
- Your estimated income
- Existing debts and information about other loans
Conclusion
We hope this free resource about home equity cash out refinance loans has been helpful. By taking advantage of your home’s equity, you can access the money you need to reach your unique goals. If you have any questions or aren’t sure if this loan is right for you, please reach out to a member of the Team Hadley team. We make refinancing as effortless as possible by guiding you through each step!