A cash out refinance loan replaces your existing mortgage with a new one that is more than what you own and gives you the difference in cash. For instance, you can refinance your existing $100,000 loan for $120,000 and get $20,000 to use as you need.
You might need a cash out refinance loan to do any of the following:(1) Make home improvements; (2) Make home repair or replacements; (3) Pay for an emergency, like a medical bill; (4) Pay for college; (5) Consolidate other loans and debts.
Refinance mortgage rates are significantly lower than credit card interest rates.
You can refinance your home loan to pay off your high-interest accounts, which could save you hundreds to thousands in interest charges. It can also reduce the number of payments you make monthly.
You can only do this type of refinance loan if you have more than 20 percent equity in your home. You can then refinance your mortgage for up to 80 percent of your home’s value typically. However, many lenders will have lower caps, and your credit score can influence how much you can borrow.
For example, if your home’s value is $285,000 and your remaining mortgage balance is $125,000, you have $160,000 of equity in your home. You can then refinance the $125,000 mortgage for up to $228,000. Keep in mind, refinancing for cash can increase your monthly payments.
If your existing home loan is an adjustable-rate mortgage (ARM) and the rate is about to change, you could refinance to a fixed rate and avoid a sudden rate increase.