Previous | Don’t Get Duped: How to Avoid Charity Fraud Next | Investment Outlook
December 20, 2019 / David Bimler
The Ins and Outs of a Cash-out Refinance

The Ins and Outs of a Cash-out Refinance

Maybe you want to renovate your bathroom or pay down some high-interest debt but you’re having trouble building up the amount of money you need to make it happen.

A cash-out refinance may be the solution. It can help you fund your home renovation, so you don’t have to take out a personal loan, another mortgage or use credit cards.

What’s a cash-out refinance?

A cash-out refinance mortgage replaces your current mortgage with a new loan for more than you owe on your home. The difference between the two loans goes to you in cash, and you can spend it on whatever you want.

It’s different than a traditional refinance, which replaces your existing mortgage with a new one, usually with more favorable terms than the original mortgage, but for the same balance.

With cash-out refinancing, you are withdrawing a portion of your home equity or the amount of your home’s value that you own. Lenders limit how much you can withdraw to no more than 80 percent of your home’s equity. In other words, you can’t pull out 100 percent of your home’s value.

For instance, let’s say you still owe $200,000 on your house, and it’s worth $400,000. That means you have $200,000 of equity in your home. You can refinance your $200,000 mortgage for $320,000 and receive $120,000 in cash.

Why use it?spreadsheet with numbers, calculator and house key

A cash-out refinance gives your quick access to a lump sum of cash and could be a more attractive option than taking out a personal loan or an additional mortgage. It lets you tap the equity you’ve already earned to pay for home renovations that will boost the value of your home or pay off high-interest debt. And it could also fund urgent and expensive medical bills or car repairs.

What should I consider before securing a cash-out refinance?

Of course, there are some things to consider before committing to a cash-out refinance. You’ll have to pay loan closing costs which could include appraisal fees. Also, your loan terms may change, meaning that your new mortgage could take longer to pay off, your monthly payments may increase and your interest rate could go up.

Bottom line

A cash-out refinance may make sense if you’re using the money for a good reason and you can score a good interest rate on your new mortgage. Using the money for home improvements can boost the equity you’re taking out. But using it to fund a vacation or pay off credit cards and other debts can put your home at risk. Keep in mind that with a cash-out refinance, you’re using your home as collateral, so make all of your payments on time and in full.

David Bimler is the Assistant Vice President, Residential Mortgage and consumer Lending Sales Manager at F&M Trust.

Recent Articles
The perfect storm for estate planning
The perfect storm for estate planning

The perfect storm for estate planning

January 21, 2021 / The Merrill Anderson Company

Four tips to getting approved for a credit card
Four tips to getting approved for a credit card

Four tips to getting approved for a credit card

December 16, 2020 / Cynthia Marconi

Five Reasons for a Trust
Five Reasons for a Trust

Five Reasons for a Trust

December 16, 2020 / The Merrill Anderson Company

Planned giving in 2020
Planned giving in 2020

Planned giving in 2020

December 07, 2020 / The Merrill Anderson Company

Stock Splits 101
Stock Splits 101

Stock Splits 101

November 18, 2020 / Warren Hurt

Three ways to protect yourself from stimulus scams
Three ways to protect yourself from stimulus scams

Three ways to protect yourself from stimulus scams

October 15, 2020 / Ray Wills

What does the federal payroll tax deferral mean to you?
What does the federal payroll tax deferral mean to you?

What does the federal payroll tax deferral mean to you?

October 06, 2020 / Shelby White

Interest Rates 101
Interest Rates 101

Interest Rates 101

September 24, 2020 / David Bimler

Work-from-home scams and how to avoid them
Work-from-home scams and how to avoid them

Work-from-home scams and how to avoid them

September 10, 2020 / Ray Wills

Join our e-newsletter

Sign up for our e-newsletter to get new content each month.

NOTICE: YOU ARE LEAVING F&M TRUST!

You are now leaving the F&M Trust website. Links to third-party sites are provided for your convenience. Such sites are not within our control and may not follow the same privacy, security or accessibility standards as ours. F&M Trust neither endorses nor guarantees offerings of the third-party providers, nor is F&M Trust responsible for the security, content or availability of third-party sites, their partners or advertisers.