Cash-Out Refinance

What is a Cash-Out Refinance?

A cash-out refinance is a type of mortgage refinancing where the borrower replaces their existing mortgage with a new one for a larger amount and receives the difference in cash at closing. For example, if a borrower has a mortgage balance of $150,000 on a home that is worth $250,000, they could refinance the mortgage for $200,000 and receive $50,000 in cash.

The cash-out refinance option is typically used to convert home equity into cash that can be used for other purposes, such as home improvements, paying off high-interest debt, or covering other expenses. Because the amount of cash received is based on the difference between the new mortgage balance and the current mortgage balance, the borrower must have sufficient equity in their home to qualify for a cash-out refinance.

Like other types of mortgage refinancing, a cash-out refinance can have both advantages and disadvantages. On the one hand, it can provide the borrower with access to a large sum of cash at a lower interest rate than credit cards or personal loans. On the other hand, it increases the total amount of the mortgage and can extend the term of the loan, potentially increasing the total interest paid over time. Borrowers should carefully consider the costs and benefits of a cash-out refinance and consult with one of our Mortgage Specialists to determine if it’s the right choice for their individual situation.

Benefits of a Cash-Out Refinance

Access to cash

A cash-out refinance can provide the borrower with access to a large sum of cash that can be used for a variety of purposes, such as home improvements, paying off high-interest debt, covering medical bills, or financing education.

Lower interest rates

By refinancing their mortgage, borrowers can potentially secure a lower interest rate than they have on their current mortgage, which can lower monthly payments and reduce the overall interest paid over the life of the loan.

Consolidate debt

If the borrower has high-interest debt, such as credit card debt or personal loans, a cash-out refinance can be a way to consolidate that debt into a lower-interest mortgage, potentially saving them money on interest and simplifying their monthly payments.

Home improvements

A cash-out refinance can provide the funds needed to make home improvements, which can increase the value of the property and potentially increase equity.

Tax benefits

The interest paid on a mortgage is tax-deductible, so if the cash-out refinance is used for home improvements or other eligible expenses, the borrower may be able to deduct the interest paid on their taxes.

It’s important to carefully consider the costs and benefits of a cash-out refinance, as it can increase the total amount of the mortgage and potentially extend the term of the loan, resulting in more interest paid over time. Borrowers should consult with our Refinance Speialists to determine if a cash-out refinance is the right choice for their individual situation.