A cash-out refinance is a way to pay off your current mortgage, and take advantage of the increased equity that is tied up in your home with a new mortgage. The money you obtain through this transaction comes to you in cash deposited into your bank account. In Colorado, many homes have increased in value in recent years with equity that may be accessed to pay off high interest debt, fund remodeling or renovations, or any other purpose.
Your home is an asset that can’t be tapped unless you sell the home to get the equity. However, a cash-out refinance can provide access to a portion of that equity while you continue to live in the home.
Your current interest rate may be higher than the prevailing rates today, so refinancing may lower your payments. Perhaps you have dreamed of updating the kitchen and bathrooms in your home which would not only be a blessing to you while you live there, but would also increase the value of the property. A cash-out refinance can provide the money to hire the contractor to do the upgrades.
A cash-out refinance allows you to tap into the equity tied up in your home, putting it to work for you. When you refinance and access some of your money, you may use it for any purpose. Many pay off debt, which means optimizing their finances and often raising their credit score. Others want to do upgrades to their home, take a vacation, buy an investment property or pay for a wedding. The choice is yours!
If you are concerned that your mortgage will start over at 30-years, Silver Leaf Mortgage has programs that offer flex terms, so you can keep your current term (length of time you have to pay on your mortgage). That means if you have 11 years left on your current mortgage, Silver Leaf Mortgage can help you do a cash-out refinance with an 11-year term. We can do just about any term between 10 and 30 years. If you want 23, 18, or 12 years, we can do it.
If you currently have mortgage insurance, you may be able to eliminate that portion of your payment if your value has increased enough in the past few years. On a conventional loan, you are not required to have mortgage insurance if you have at least 20% equity in your home.
When you started your current mortgage, you may have had only 5% equity in the home. You were then required to pay for mortgage insurance. However, the combination of the payments you have been making and the appreciation or increase in the value of your property have grown so that you now have 20% or more equity.
Refinancing is an easy process and can have the added benefit of boosting your credit score when all is said and done. If your credit cards are maxed out or are higher than the recommended 30% usage, paying them off with proceeds from a cash-out refinance can help your credit score. Interest rates are still at historical lows.
What is a cash-out refi?
A cash-out refinance is a tool that can be a great choice in many situations. It is an opportunity to put the equity tied up in your home to work for you. The cash available to you may be used for any purpose. Many people use a cash-out refi to pay for renovations to their home, pay off high interest credit card debt, or pay for college or weddings. You can decide how the money is used. There are no restrictions.
What is an example of a cash-out refi?
Let’s say you took out a mortgage 10 years ago for $300,000 and you have now paid it down to $230,000. Also, your home value has climbed to $450,000. You could do a cash-out refinance to access the additional equity in your home. You are allowed to borrow up to 80% of the home’s value of $450,000. Eighty percent of your $450,000 value is $360,000. Since you need to pay off your current mortgage of $230,000, you would be able to access around $130,000 in cash. The money is wired into your bank account three days after the closing. You have a three-day right of rescission by law.
Will I have options on fees and interest rates with a cash-out refi?
There will, of course, be standard fees involved with doing a cash-out refinance, but these can very often be covered in the financing of the loan. Remember that at Silver Leaf Mortgage we can help you with a customized loan term so that you are not starting over with a 30-year loan. You will have options as to the amount of cash you want to obtain, the interest rate and the costs. Speaking with the experts at Silver Leaf Mortgage will give you all the information you need to make an informed decision.
Why should I consider a cash-out refi?
You may want to do renovations to make your home more modern or just more comfortable. By doing a cash-out refinance, you are putting your equity to work for you. The renovations may also increase the value of your home.
You may want to pay off high-interest credit cards, thereby reducing your monthly payments. The improved cash flow that this affords can be such a relief! Once credit cards are paid off, or paid down, your credit score my increase. The difference between the interest rate on a mortgage and the interest rate on credit cards may be as much as 20% a year!
Perhaps you have a student ready for college, or a child who is getting married. By using a cash-out refinance, you will have access to the funds for these or other purposes.
You may also have the ability to use a cash-out refinance to get funds to use as a down payment on another property.
If the interest rates now are lower than the interest rate on your current loan, you will save money by paying less interest on your mortgage when you refinance.
How much money can I get with a cash-out refi?
Depending on a few factors like how much you owe, the value of your property and your credit score, you may be able to access up to 85% of your home’s value with an FHA cash-out refinance. If you are eligible for a VA cash-out refinance, you will be able to access 100% of your home’s value. If you want a conventional cash-out refinance, you may borrow up to 80% of the home’s value. Since the first obligation is to pay off your current mortgage, that will affect how much cash you will receive in your bank account.
You will have the opportunity to decide what interest rate and monthly payment will be right for you. A little higher interest rate will mean lower closing costs. You may also opt to buy down the interest rate with a bit higher closing costs. Contact a Sr. Loan Officer at Silver Leaf Mortgage to talk through your options and choose the one you like the best.
What are the fees involved in a cash-out refi?
Fees are not high at Silver Leaf Mortgage and generally include such things as the appraisal, title fees, the lender’s fee, a credit report and flood certification. If you want the lender to pay your homeowner’s insurance and property taxes, then a couple of months will be collected at closing to be kept in an escrow account. When your current mortgage is paid off by the cash-out refinance, you may receive a refund for any money that was in the escrow account managed by the old lender.
Silver Leaf Mortgage is a broker, which means that we can seek out the very best options for you offered by a variety of lenders whether you are self-employed, or W-2. Our loan officers have years of experience and will work closely with you to be sure that the cash-out refinance loan you select will best meet your needs.