Refinance Your Home
Owning your home is an important investment—one that helps build equity. Fortunately, you don’t have to wait until your mortgage is paid off to access your home’s equity. You can turn the equity you’ve built into cash with a cash-out refinance loan.
A cash-out refinance loan is a new mortgage that replaces your current mortgage and gives you cash at closing.
A cash-out refinance loan is a type of mortgage that allows homeowners to cash in on the equity they’ve built in their homes through consistent, on-time mortgage payments and the home’s appreciation in value. Both a cash-out refinance and the other common refinance mortgage, a rate and term refinance, involve replacing your current mortgage with a new mortgage. With a cash-out refinance, the new mortgage will have a higher balance; and, at closing, you’ll receive cash for the difference between the old mortgage loan and the new one. (See the chart below for other comparisons and contrasts.)
This cash can be used for any purpose you choose, such as capitalizing home repairs or improvements, eliminating high-interest debt or investing in other property. A cash-out refinance loan is a great way to borrow cash from your home without having to take out a second mortgage or a home equity loan. The alternative options may not offer terms and conditions as affordable as a cash-out refi.
Whether the original loan with which you bought your home was conventional, FHA or VA, you may qualify for a cash-out refinance. The qualification process is similar to qualifying for a conventional purchase loan. You need to meet standards set by Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation), both of which are sponsored and overseen by the federal government. With these standards come flexible refinancing options.
| Feature | Cash-Out Refinance | Rate & Term Refinance |
|---|---|---|
| Primary Objective | Access cash from equity in your home | Lower your interest rate or shorten length (term) of your loan |
| New Mortgage Amount | Increased from mortgage being replaced | Unchanged from prior mortgage |
| Key Advantage | Opportunity to benefit from accrued home equity with comparatively lower interest cash for a wide variety of needs | Possibility of shorter loan life, lower interest rate, elimination of PMI or lower payments |
| Cautionary Caveat | Were home values to drop, you could find yourself “underwater” (owing more than the value of your home). | You could end up extending the number of years you are in debt for your home. |
|
Must there be an appraisal? Will there be closing costs? | Yes, and yes. | Yes, and yes. |
To find out if cash-out refinance is a viable option for reaching your financial goals, connect with us at Compass Mortgage! As a first step, we’ve outlined what you’ll need to do and the documentation required to gain approval for a cash-out refinance loan.
Contact us! We’ll help you assess whether you’ll benefit from refinancing your current mortgage.
We will consider:
We will be there for you through each step of the process—all the way through closing.
Standard requirements to qualify for a cash-out refinance are as follows:
Making the most of the value of your home in relation to your financial goals greatly impacts your life. It’s ok to have questions. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.
A cash-out refinance loan is a type of refinancing that allows you to get cash back from your home equity.
Cash-out refinance loans can be a good option if you’re looking to access cash for any purpose, whether it’s to cover any variety of expenses, pay down debt or make home improvements. These loans often have more affordable terms and conditions than other types of financing, making them a great way to save money on interest and get out of debt faster.
With a rate and term refinance, you can lower your interest rate, monthly payments or the repayment period, but you won’t receive any cash back. While your monthly costs may be lower, you won’t have extra funds to tackle any debt or make any home improvements.
The cash you receive from a cash-out refi can be used for any purpose you choose.
Some typical uses for the funds received include paying off high-interest debt, providing for home repairs and improvements, investing in other property and covering extra or unplanned expenses.
The funds forthcoming from a cash-out refi will be paid by check after closing. For primary residences, there is a three-day waiting period to accommodate the option of rescission, with the funds becoming available beginning on the fourth day.
To qualify for a cash-out refinance, you’ll need to have at least 20% equity in your home. If you have less than 20% equity, you may still be able to qualify for a cash-out refinance, but you’ll likely have to pay for PMI.
The interest rate on a cash-out refinance loan is usually lower than the interest rate on other types of financing such as personal loans or credit.
This is because cash-out refinance loans are secured by your home’s equity, which means the lender is at less risk of not getting their money back if you default on the loan.
A cash-out refinance goes through many of the same steps required to close a conventional purchase loan. As was the case when you purchased your home, you will need another home appraisal for a cash-out refinance so that we can establish the value of the home.
Once the value is determined, we can finalize the details of your loan to calculate how much cash you can borrow with a cash-out refi.
When you close on your cash-out refinance, you’ll need to account for several costs. These can include fees for home appraisal, loan origination and title insurance, and they typically range from 2-4% of your total loan amount.
You’ll also need to factor in the cost of any discount points or up-front PMI costs you choose to pay. All costs will be clearly outlined as your loan is processed and before you close.