Cash-Out Refinancing

Simply, a cash-out refinance takes the place of your current mortgage with another loan that: 

  • Pays off what you owe on your current mortgage.   
  • Utilizes the equity in your home to provide additional funds for other expenses. 

Cash-out refinancing is a way to gain access to your homes equity. Refinance your mortgage, then receive the cast at closing. Your new loan will be for a for a higher amount as you are paying off the existing one and obtaining the difference in cash Any closing costs rolled into the loan will be added as well. 

Cash-out refinance is a mix between refinancing and a home equity loan. Borrow the money you need, as with a home equity or line of credit (HELOC) 

 

Cash-Out Refinance Loan Programs

Do you live in Willmar or anywhere in Minnesota? Refinance your mortgage to a new one that has a lower interest rate or shorten the loan term. 

    1. Borrow additional funds to pay bills or to use however you see fit. 

This sums up what cash-out refinancing is all about. Out of the three popular home equity loans, cash-out refinancing is one of them. Fixed-rate home equity loans and HELOC (home equity line of credit) are the second and third. 

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Cash-Out Refinance vs. Fixed-Rate Home Equity vs. HELOC
  • Cash-Out Refinance

    With this type of loan, you can take out an already existing loan either to get a lower interest rate and/or to borrow additional money.

  • Fixed-Rate Home Equity

    As the name infers, this type of loan comes with a fixed interest rate that is fully amortized over a predetermined period of time.

  • Home Equity Line of Credit (HELOC)

    With HELOC, your interest rate is determined by the going rate of the market. Apart from a fixed-rate home equity loan, the balance of your monthly mortgage payment is dependent on both the amount of money you borrowed and the going market interest rate. 

    Let’s get into the when, the why, and the where for cash-out refinancing loan programs. 

When and Why a Cash-Out Refinance Loan May Be Right for You

Homeowners finance and refinance their existing loans for a multitude of reasons. The primary one is to simply lower the interest rate. If this is your goal, it may be time to consider doing a re-evaluation to see if a cash-out would be right for you. These are some metrics to help you make your decision. 

  • Liabilities vs. Assets

    If you’re considering a cash-out refinance loan, it’s important to evaluate what you need it for. It may become an incoming liability if you plan to use it for spur-of-the-moment shopping or just to have extra cash on hand. If you are planning to use it as an investment for a current business or school tuition for you or your family, this type of loan may be a great option for you.

  • Lower Interest Rates

    An advantage of this type of loan is that the interest rate does not change, unlike HELOCs (Home Equity Line of Credit). If the market interest rate fell below your existing monthly mortgage rate when it was first calculated, a cash-out refinance loan could benefit you.

  • Qualifications

    There are certain criteria you must meet in order to qualify for this type of loan. This includes your creditworthiness, current income, and the equity you have on your house. Basically, you must have a good enough credit score, a stable income that will be able to afford your monthly mortgage payments, and accrued equity or stake in your current house. You may not be able to qualify for this type of loan if you’re not able to meet these requirements.

  • Length of Stay

    How long will you be staying at this property? It’s not recommended that you take out this type of loan if you’re only planning to reside at the property for just a couple of years.

  • Refinancing Costs

    Knowing how much you will likely spend on the closing costs for your new loan is vital. If the amount you would be saving on your monthly mortgage payments after refinancing is close to the total you need to pay in property appraisal and application fees, title insurance, closing costs, etc., there is no real benefit to this type of refinancing. Make sure to think it through to see if a cash-out refinance would be beneficial for you.

  • Effective Tax Rate*

    Before you decide to refinance a cash-out loan, compare your effective tax rate before and after refinancing. If the amount of taxes you would have to pay becomes greater, this option may not be the best for you. If the amount of taxes paid is less, it may be a good option to refinance. 
    *Supreme Lending is not a licensed CPA or Tax consultant and therefore, cannot determine if your mortgage interest will be eligible as a tax deduction per IRS code. You are advised to contact a tax professional. This in no way implies you are guaranteed a tax credit. 

  • Long-Term Thinking

    This has to do with considering the remaining term you have on your current loan. How much time you have left on your existing mortgage adds up to how soon you can pay it off or the total balance you must pay over an extended period of time.

Cash-Out Refinancing Advantages

Refinanced mortgage rates are often lower than the interest rates on other types of debt, making it an extremely attractive way to borrow money. So, it may be a cost-effective way to utilize your home’s equity. You’ll be lowering the interest rate of credit card debt or a home equity loan if you use the cash to pay these off. 

Mortgage debt can also be paid over a substantially longer time period compared to other types of debt—up to 30 years. It can make payments more manageable if you have a large amount of debt to be repaid within five or 10 years. 

If the market rate is lower than when you initially took out your mortgage, a cash-out refinance may let turn your equity into cash and lower your interest rate at the same time. 

When To Decide?

How do I know if it’s the right time for a cash-out refinance? There’s no hard-and-fast answer to the question, but it may be wise to consider refinancing if any of these situations apply: 

  • Interest rates have dropped considerably since the last time your home was financed. 
  • You intend to stay in your home for an indefinite period. 
  • You can shorten the length of your loan term. 
Important Questions to Ask

With a cash-out refinance, it’s helpful to think about the benefit of how you plan to use the money and the amount of time it will take to pay off your loan. You may be able to lower your interest rate by refinancing, but if your loan term is extended, it may result in you having to pay more interest throughout the life of the loan. Here are some questions to consider: 

  • How many years do you have left until the end of your current loan term?
  • What is the length of your new loan term?
  • Can you shorten your existing loan term?
  • Is the market interest rate lower than your current financed rate?
  • How much cash do you need?
  • How much do you pay monthly?
  • Does it influence your taxes?
  • What’s the total borrowing cost?
  • What’s the point of time at which you break even?
A Quick Example

In order to qualify for a cash-out refinance, you must have a certain amount of home equity. That’s what you use to borrow.

If your home is currently worth $250,000 and your mortgage owed is $150,000, that means you have $100,000 in home equity (40% of the value of your home).

It’s standard to retain at least 20% of the equity in your home, which would allow you to borrow a total of $50,000.

To borrow that amount, you would take out a new mortgage for $200,000 ($150,000 owed plus $50,000) and get a $50,000 check at closing. Your closing costs, which are 3-6% of the loan amount, are not taken into account as it is often rolled into the mortgage.

Contact us today to help answer any questions and to see if a cash-out refinance could be right for you.

Where Can I Get Started on My Cash-Out Refinance Loan Program?

Supreme Lending Willmar as a leading mortgage provider assist you with a a cash-out refinance loan. Let’s examine the six steps of our process:

  1. Start the application process online, via phone, email, fax, or in-person. Oneof our Loan Officers will be assigned to work with you.
  2. Your credit worthiness will be evaluated based on recommended industry guidelines.
  3. Once your intent to proceed has been granted, we will send you the initial disclosures
  4. The information from your loan application is compiled and processed.
  5. After the property appraisal has been completed,. the appraisal will be sent to our underwriting department.
  6. When it’s time to close on your new loan, the necessary documents will be prepared and sent to the title company. Following that, we’ll get your closing disclosure (plus final closing figures) and send them to you to sign within a 3-day period.
  7. We offer after-loan support by phone. Head over to our office or give us a call at 320-262-8503 to get started on your new loan.