For many consumers, a Cash Out Refinance Loan can be used as an option to pay off credit card debt. The process involves replacing your current home loan with a new one. It requires that the homeowner take out a larger home loan than the current loan in order to access part of the equity and receive it as cash, which is the “cashing out” part.
With a Cash Out Refinance you might be able to enjoy a lower interest if interest rates drop below your current mortgage, but the opposite can be true as well. If mortgage rates have increased since you took out your original mortgage a HELOC might be a better option.
For a Cash Out Refinance you will need equity in your home. Let’s say your home is worth $300,000 and you owe $150,000 on your current mortgage. That gives you $150,000 in equity, or 50% of the value of the home. You will need to retain at least 20% equity in your home after the Cash Out Refinance, so that will give you $90,000 available to “cash out.” It is important to understand the equity in your home and the loan-to-value ratio, otherwise known as “LTV.”
If you have equity in your home, interest rates are at or below your current rate, and you have a decent credit score a Cash Out Refinance might be a good debt consolidation option.
If you have equity in your home, interest rates are at or below your current rate, and you have a decent credit score a Cash Out Refinance might be a good debt consolidation option. For more information, contact one of our specialists to help you assess if a Cash Out Refinance is a good option for you.