Now’s the time to cash out on all the equity built up in your home. Mortgage Rates are still extremely low which means now is a great time to refinance your home. Instead of selling your home and struggling to find a new home because of the record low inventory available in the state of Utah consider this option. You can cash-out the money built in your home without the hassle of looking for a new place. The money you receive can be put towards home renovations, investment opportunities, paying off loans, or anything that you need. Here’s how it works:
So What Exactly Is A Cash-Out Refinance?
As your mortgage matures, you gain equity in your home. Equity refers to the amount of a home’s value that you’ve actually paid off. You can gain equity by two ways:
- Your home increases in value. (Utah’s housing market ranked #3 in the U.S. for annual appreciation. In the Salt Lake City Metro Area, house prices rose 15.9 percent over the past year.)
- You pay down your mortgage principal through your monthly mortgage payments. Every time you make a monthly payment on your loan, you gain a bit more equity in your home.
A cash-out refinance is a type of mortgage refinance that takes advantage of the equity you’ve built over time and gives you cash in exchange for taking on a larger mortgage. In other words, with a cash-out refinance, you borrow more than you owe on your mortgage and pocket the difference.
Unlike when you take out a second mortgage, a cash-out refinance doesn’t add another monthly payment to your list of bills – you pay off your old mortgage and replace it with your new mortgage.
For example, let’s say that you bought a home for $200,000 and you’ve paid off $60,000. This means you still owe $140,000 on your home. Let’s also say that you want to make $20,000 worth of renovations.
With a cash-out refinance, you take a portion of your equity and then add what you’ve taken out onto your new mortgage principal. This means your new mortgage would be worth $160,000 – the original $140,000 you owed on the home plus the $20,000 you need for renovations. Your lender gives you the $20,000 in cash a few days after closing.
When you refinance, you can do anything you want with the money you take from your equity. You can make repairs on your property, catch up on your student loan payments or cover an unexpected medical or auto bill. Cash-out refinances also usually give you access to lower interest rates than credit cards.
How Much Cash Can You Get On A Refinance?
The amount you earn on your refinance typically depends on your home’s value. Before finding out how much you qualify for, you’ll need to have your home appraised. In general, lenders will let you draw out no more than 80% of your home’s value, but this can vary from lender to lender and may depend on your specific circumstances.
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