Cash-Out Refinance Loan

How Cash Out Refinancing Works

Cash out refinancing allows you to refinance your home for more than it is worth and pocket the extra cash at closing. The money that you get back can be used for debt consolidation, college tuition, home improvements, or anything else you wish to spend the money on.

Once a cash out refinance is complete, the new loan will consist of the original balance prior to the refinance plus the desired cash-out amount. So expect both the size of your mortgage balance and your mortgage payment to increase in return for cash in hand.

There are really three types of home equity loans: home equity loan, home equity line of credit (HELOC) or a cash-out refinance. Allow me to break down all three so you can determine which one makes the most sense for your unique situation.

Equity Loan

Who is this good for?

Home owners who want money for a one-time event and prefer the security of fixed-rate loans. This is a good option if you want to keep your current mortgage and prefer to receive the cash in a lump sum.

This is essentially a second mortgage where the rate is usually fixed and you repay both interest and principal each month. The cash-out amount is received as a lump sum and you cannot draw additional money from the loan. The interest rates are generally higher than HELOCs of the same amount because you have the security of a fixed rate.

Home Equity Line of Credit (HELOC)

Who is this good for?

Home owners who need access to a reserve of cash over a period of time. For example, during a remodel you can withdraw cash periodically to pay contractors. HELOCs provide the flexibility of having access to cash, but not paying interest until you actually withdraw from it. Your payments are only calculated based off the amount withdrawn, and not the total balance like a simple equity loan above.

Equity lines of credit let you draw cash as you need it up to your credit limit. These are adjustable loans so your monthly payments will change with the market. Often, HELOCs allow you to pay interest only for an initial period which can lower your monthly payments until you are ready to pay principal also.

Cash-Out Refinance

Who is this good for?

Home owners who have built a lot of equity and want to refinance their entire mortgage, this is the way to go. There are many reasons to refinance, such as taking advantage of lower rates or switching from an ARM to a fixed-rate loan. If you plan to refinance and also want extra cash, this takes care of both.

This is a refinance where you’ve build enough equity to refinance for more than you currently owe and take the additional cash. This will increase your monthly payments because you are borrowing more. You should compare the rates for refinancing against those for equity loans to see which are better.

To determine which option, if any will best suit your needs just complete the brief form to the right or call Jody at (702) 769-1791  to schedule your appointment. There is no cost to apply, and you are under no obligation.