What are cash-out refinances?
When people hear the word refinance, the first thought that comes to mind may be a lower mortgage rate. However, there are other benefits that you may want to consider, such as taking cash out of your loan. This type of refinancing is a cash-out refinance. Essentially, cash-out refinancing allows you (the borrower) to replace your existing mortgage with a new one with a larger balance.. Once you close on your new loan, the difference between your previous loan balance and your new balance is provided to you in cash proceeds.
Why do people choose a cash-out refinance?
There are many reasons why someone may prefer a cash-out refinance compared to a rate-and-term refinance (where you refinance your loan for a lower rate):
- Home Improvements: Have you ever considered building an addition to your home? New Carpet? Redo the kitchen or build a deck? Cash-out refinancing can make those dreams a reality. Rather than taking out a second loan for these projects that could be more of a hassle and potentially a higher interest rate, you can move forward with a cash-out refinance.
- Pay off High-interest Debt: Another reason why people choose a cash-out refinance is to pay off bills and lower their overall monthly debt payments, saving them thousands of dollars each month. . Whether it be an auto loan or credit card bills, cash-out refinancing could be a great way to pay off higher-interest loans.