Refinancing a Home

Over the past few years, homeowners have experienced an exponential surge in equity. In fact, the Federal Reserve states American homeowners have more than $20 billion in real estate value. With all that equity waiting to be utilized, now is the perfect time for homeowners to turn it into cash with a cash-out refinance.

A cash-out refinance is a mortgage refinancing option that trades the remaining balance of the original loan for a new loan amount that is greater than what is owed. The difference between the two is the borrower’s home equity.

How it works

A cash-out refinance is a fancy way of saying “turn your home equity into cash.” When you get a cash-out refinance, you get a new loan for more than what you currently owe. The difference between your new loan and the old one is your “cash-out.” What you get back depends on how much equity you have, or what the house is worth compared to how much you owe.

While the process is fairly simple, every borrower must meet certain criteria to get a cash-out refinance. Your loan provider will determine your debt-to-income ratio. This assures them that you can handle your new monthly payment amount. Next, the lender will evaluate your loan-to-value ratio which determines your cash-out eligibility. Finally, you will have to meet any home equity minimum that your lender has set.

Enjoy your equity now

Many homeowners wait until they are ready to sell to cash-out. That is a great option as it affords many homeowners the funding they need to make updates or repairs to get their home market ready. But, when you use your equity to make pre-sale improvements, you don’t get the chance to enjoy the home equity that you built. You can use your equity to improve your home and enjoy it at the same time.

Whether you create your dream chef’s kitchen or turn your bathroom into an at-home spa, the possibilities of how you spend your cash-out are (nearly) endless. You deserve to enjoy your home equity. Getting a cash-out refinance when you plan on remaining in your home can help you make the upgrades you’ve always wanted.

If you’re happy with your home, you could use your cash-out refinance to enjoy your life outside of your home. Other possible ways to utilize your equity include:

  • Consolidate multiple loans or other debt
  • Pay off unexpected expenses
  • Go on your dream vacation

Other benefits

If enjoying your equity isn’t reason enough to see if you’re eligible for a cash-out refinance, we know of a few other benefits. For instance, since you already own a home, it is typically easier to qualify for a refinance. You will have established a consistent payment history and your home’s value will be more than what you owe.

Your mortgage interest is tax deductible*. When you refinance, there are also some closing fees that may be tax deductible as well. You could also get a better rate. Interest rates today are low but won’t stay that way for long. A cash-out refinance could help you get a lower interest rate than your original loan.

It’s up to you to decide if a cash-out refinance is right for you. If you have questions, our loan experts are always available to help you navigate the process. Contact a PrimeLending® loan officer today to get started.


*PrimeLending is not authorized to give tax advice. Please consult your tax adviser for tax advice for your specific situation.

Written By Becky Bruning