Cash-out refinances are popular because they allow a homeowner to turn the equity in their mortgage into cash that can then be used however they want – that could involve paying down debts, investing in new properties, making home improvements, or even making a large purchase; there are no rules on the proceeds from a cash-out.
A cash-out comes with standard fees and credit requirements like a refinance, dependent on a customer’s unique qualifications:
The type of mortgage being refinanced will also make a difference:
Let’s imagine a scenario:
A homeowner’s initial mortgage was $500,000 – over time from their initial closing until now, they’ve paid the balance down to $200,000.
In a cash-out refinance, the homeowner can take out a new, higher loan – we’ll say at $250,000 – and then pocket the difference in cash – in this case, it would be $50,000.
There is currently an estimated $21.1 trillion in equity in homes across the U.S.
Compare that against:
Lack of new housing continues to affect the US economy, and the aftereffects of the COVID pandemic have acted in a multiplier effect with the associated slowdown of the supply chain so important to builders and developers.
In response, a cash-out refinance can be the perfect solution for homeowners who want a change of scenery but find it impractical to sell in the current environment. For example, the money taken out in a cash-out refinance can be used to make improvements on, add an extension to, or renovate a current home and ultimately add value or turn a property into a dream home designed to better fit their needs and sell for more in the future.
Outside of putting cash directly into their pockets, homeowners also could explore a cash-out refinance to pay down a high-interest mortgage using the lower rate of the cash-out refinance.
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