Are you saddled with unwanted debt and eager to be done with it? If the answer is yes, you’re not alone – plenty feel the same burden and are searching for financial freedom. However, what many do not know is that the answer to eliminating debt might be right under their noses.
Did you know that your home is a possible solution to tackling your debt? That’s right, your home, or more specifically your home’s equity, could be your golden ticket. Learn how to use your home’s equity for a refinance and get cash at closing.
What is a Cash-Out Refinance?
Over the years, a monthly mortgage payment has built up your home’s equity and a cash-out refinance can help you transform this accumulated equity into cash. Many people address issues like credit card debt, home upgrades, unexpected medical bills or student loans using a cash-out refinance.
Why is this a good option?
- Easier Qualifications – Since you already own a home, have established a good payment history and your home’s value has increased, you’ve got a great head start on qualifying. That typically makes for a quicker and easier qualification process.
- Tax Deductions – Unlike credit card interest, mortgage interest is tax deductible*. A cash-out refinance could reduce your taxable income and land you a bigger refund during tax season.
- Consolidate Debt – If you utilize your cash-out refinance to consolidate debt, you could save thousands of dollars in interest.
- Improve Credit Score – Paying off your high-interest credit card can cause your credit utilization to go down considerably. Ultimately, this could give your credit score a boost.
What are the disadvantages?
- Closing Costs – These are fees you will have to pay with a cash-out refinance. While there may be many cash benefits, make sure to include closing costs into your evaluation. Although you pay closing costs, it’s possible to roll closings costs into the refinance.
- Longer Term – It’s typical with a cash-out refinance to reset your mortgage to a longer term than your original home loan, adding months and years to the length of your loan. That means you might end up extending your mortgage beyond the original term.
- Higher Rates – While you might get the opportunity for a lower interest rate than your current mortgage, your cash-out refinance rate may be higher than a non-cash-out refinance at market rate.
- New PMI – Borrowing more than 80% of your home’s value could require you to pay private mortgage insurance (PMI), potentially adding hundreds of dollars to your monthly payment.
Learn about your options
Wondering if a cash-out is the right decision for you? Connect with one of our qualified loan experts to run your numbers and talk about your options.
Our team is eager to empower you throughout the entire home loan process. To explore your options or learn more about a cash-out refinance, reach out to a PrimeLending expert for individualized guidance.
* PrimeLending is not authorized to give tax advice. Please consult your tax adviser for tax advice for your specific situation.