A cash-out, or equity, refinance is a type of home loan where the borrower is given money at closing, which is over and above the amount needed to pay off their current mortgage, to use for debt consolidation, home repair, etc. This works by using the lendable equity available in the borrower’s home. For example, your home appraises for $300,000. Your current mortgage balance is $150,000. The lender is able to loan up to 80% of the home’s appraised value, which would be $240,000. The lendable equity, or amount available for cash-out, would be $90,000. At closing, you would sign paperwork on a new mortgage loan that pays off your current mortgage and gives you up to $90,000 cash-out for a total loan amount of $240,000.
Here are some advantages of a getting a cash-out refinance:
Recently, one of the loan officers here at Simply Home Lending was working with a borrower on refinancing their home. The borrower was interested in lowering their interest rate since their current mortgage was a few years old and had a higher rate. Once the appraised value of their home was determined, the loan officer discussed the cash-out options available to them. In this case, the borrower had enough lendable equity in their home to pay off a vehicle, which they owed $32,000 on and paid $532.00 per month for. The borrower had initially planned to only borrow enough money to pay off their current mortgage, which would have left them with a monthly payment of $555.75. The additional $32,000 for the cash-out refinance raised their new monthly mortgage payment to $644.19. The cash-out option costs the borrower an additional $88.44 per month, but they will no longer have to pay the $532.00 per month vehicle payment. This gave them a net monthly savings of $443.56.
This is just one example of how a cash-out refinance loan from Simply Home Lending can save you money. If you would like to know more about how Simply Home Lending can help you with your cash-out needs, please contact one of our knowledgeable loan officers by phone at 479-695-3838 or online on our contact page.