Cash-Out Refinancing & Home Equity

Basically, a cash-out refinance replaces your current mortgage with another loan which:

  • Pays off the balance of your current mortgage
  • Uses your home equity to provide additional funds for other expenses.

A cash-out refinance is an option that replaces your old mortgage with a new one. The amount will be larger than the previous existing loan, helping borrowers leverage their home equity into cash.

 

Cash-Out Refinance Loan Programs

Do you live in DFW or anywhere in Texas? We have a seamless way:

  1. Refinance your mortgage to a new one with a lower interest rate or shorten the loan term.
  2. Borrow more money to pay bills or spend it however you see fit.

Basically, this is what cash-out refinancing is all about. It’s one of the three most popular types of home equity loans, along with Fixed-Rate Home Equity and Home Equity Line of Credit (HELOC).

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

    This type of mortgage loan allows you to tap some of the equity in your home if you need extra cash. You can also use it to get a lower interest rate on your existing loan.

  • Fixed-Rate Home Equity

    As the name implies, this type of loan comes with a fixed interest rate which is amortized in full over a predetermined period.

  • Home Equity Line of Credit (HELOC)

    With HELOC, your charged interest rate depends on the market rate. Unlike the fixed-rate home equity loan, the sum of your monthly mortgage payment considers both the going market interest rate and the amount of money you borrowed.
    Let’s dive deeper into the when, the why, and the where in terms of cash-out refinancing programs.

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

Homeowners decide to finance and refinance their loans for a variety of different reasons. If your goal is just to lower the interest rate, it may be wise to do an evaluation to determine if a cash-out refinance is right for you. Here are some metrics that are helpful to consider before decision making.

  • Liabilities vs. Assets

    It’s necessary to determine exactly why you need to take out a cash-out refinance loan. It might become a liability if it’s just for the spur-of-the-moment shopping or just to have extra cash on hand . If you are looking to invest in a current business or use it to pay for further education for you or your family, it may be a great option.

  • Lower Interest Rates

    One of the key benefits of this type of loan is that the interest rate does not fluctuate, unlike HELOCs. You can take advantage of the market if the interest rate falls below what your existing mortgage rate is by refinancing.

  • Qualifications

    Before you can take out this type of loan, you must meet certain criteria. Your qualification is dependent on your creditworthiness, current income, and how much equity you have accrued. What this means is that your credit score must be above a certain number, your income must be stable enough to afford your monthly mortgage payments, and you have sufficient equity.

  • Length of Stay

    How many years do you plan on staying at the property? If it’s for a short time, like a couple of years, it’s not recommended that you take out a cash-out refinance loan.

  • Cost of Refinancing

    It’s crucial to understand how much you will likely be spending for closing costs on your new loan, like appraisal fees, application fees, title insurance, and closing costs. Should these costs outweigh the amount saved on monthly mortgage payments, it’s time to sleep on it before making your decision. There is no point in spending a ton of money on upfront payments if they meet or exceed savings from your refinanced mortgage payments.

  • Effective Tax Rate*

    Compare your effective tax rate before refinancing and after. If there is a large increase in the amount of taxes you’ll have to pay after the refinance, taking out this type of loan may not be in your best interest. If you find that you’ll be able to pay fewer taxes after refinancing, consider refinancing with this type of loan.

    *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.

  • Thinking in the Long-Term

    Consider how much term you have left on your current loan. The amount of time you have left on your current mortgage adds up to how soon you can pay it off, as well as the amount you pay over that period.

The Pros of a Cash-Out Refinance

Mortgage rates that are refinanced tend to be lower than interest rates on other debt types. 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 repaid over a considerably longer timeframe than other types of debt. If you have a large amount of debt to repay over 5-10 years, it can make your payments more manageable by extending the period for up to 30 years.

If market rates dropped since you took out your initial mortgage, a cash-out refinance may let turn your equity into cash and lower your interest rate at the same time.

When Do I Decide?

How do you know if a cash-out refinance is the best choice? There’s no easy answer to that question, but if these situations apply, it may be a great option to consider

  • Market interest rates are much lower than when you initially financed your home.
  • You intend to stay in your current home long-term.
  • You can cut down your current loan term.
Questions to Think About

With cash-out refinancing, it’s critical to weigh the benefit of how you plan on using the money against the amount of time it takes to pay off the loan. Refinancing could give you a lower interest rate, but if it extends the life of your loan, you may end up paying more in interest over the longer timeframe. Take some time to consider these questions:

  • How many years do you have left in your current loan term?
  • What is the length of the new loan term?
  • Are you able to shorten your loan term?
  • Is the interest rate lower than your current financing?
  • What is the amount of cash needed?
  • What’s the monthly payment total?
  • What effect can it have on your taxes?
  • What’s the total borrowing cost?
  • What is your break-even point?
A Quick Run-Through

You need to have a certain amount of equity on your home to qualify for a cash-out refinance. That’s your collateral.

Say your home is worth $250,000, and you still owe $150,000 on your mortgage balance. That gives you $100,000 in home equity (40% of the home’s value).

You want to retain at least 20% of your home’s equity after you refinance, so that allows you to borrow $50,000.

To borrow that number, you take out a new mortgage for $200,000 ($150,000 already owed with an additional $50,000) and get a $50,000 check at closing. This does not recognize your closing costs, which are about 3-6% of the total loan amount and are often rolled into the mortgage.

Ready to get started? Contact us today for help answering any of these questions to help you decide whether cash-out refinance will help you.

Where Can I Get a Cash-Out Refinance Loan Program?

Supreme Lending DFW is one of the top companies in the United States for borrowers to get a cash-out refinance loan. Our extremely fast loan program typically closes within three weeks, and it’s ideal for customers anywhere in the DFW region. Have a look at the 5 steps of the loan process:

  • After you start the application process online, via phone, email, fax, or in person, one of our Loan Officers will be assigned to work with you.
  • Your credit worthiness will be evaluated based on recommended industry guidelines.
  • Once your intent to proceed has been granted, we will send you the initial disclosures
  • The information from your loan application is compiled and processed.
  • After the property appraisal has been completed the appraisal will be sent to our underwriting department.
  • When it’s closing time, we’ll prepare and send the necessary documents to the title company. After that, we’ll prepare and send your Closing Disclosure (CD) to you to sign within a 3-day timeframe.
  • We provide after-loan support via phone. Visit our office or call us at 469.3042 to get started!.