If you are a homeowner thinking about a significant home renovation, you have probably already considered your budget. As with any large project, you need to have the ability to pay the expected costs plus have a little bit extra set aside, just in case. The great news is that if you are a homeowner with a mortgage, you may qualify for cash-out refinancing, which can be a helpful way to leverage some of your home equity to cover renovation costs.
In today’s blog post we’ll explore the topic of cash-out refinancing and how this unique financial product can help to solve your budget woes.
What is Cash-Out Refinancing?
If you have never heard of it before, you are probably wondering exactly how cash-out refinancing works. In short, you refinance your existing mortgage into a new one while keeping the difference in cash. For example, if you have $100,000 left on your mortgage, but your home is worth $200,000, you might decide to refinance to $150,000. You will then be left with $50,000 in cash, which you can pull out to cover the cost of renovations or for other purposes.
Note that this is different from other forms of mortgage refinancing, which may or may not increase your total balance.
Some Of The Major Pros Of Cash-Out Refinancing
As you might imagine, there are significant pros to cash-out refinancing. If you decide to use the funds for renovation purposes, you are essentially using your mortgage to increase the value of your home. That is, of course, assuming you complete renovations which boost your home’s value!
Cash-out refinancing can also provide better or more stable interest rates than a loan or a home equity line of credit. This depends on a variety of circumstances, so be sure to check with your lender.
A Few Other Considerations To Keep In Mind
As with any financial product, there are some considerations to keep in mind. You may be extending the length of your mortgage, or refinancing to a different interest rate. You also can’t just walk in and sign for cash-out refinancing. There will be a process similar to the one that you went through when you got your current mortgage.
As you can see, cash-out refinancing is an excellent option for homeowners looking to use some of their home equity to finance other expenses. To learn more about this type of refinancing or to explore other mortgage options, contact us today.