Understanding Real Estate

Know These Three Things About Cash-Out Refinances

by Lauren Peck

Are you considering a cash-out refinance for your home and are looking for more information about it? You should definitely know the following things about cash-out refinances so you can decide if they are right for you.

Cash-Out Refinances Can Take Advantage Of Higher Home Values

You may not realize how much equity you actually have in your home. That is because many people are fixated on the price that they paid and how much has gone toward the principal balance. When you get a cash-out refinance, your home is appraised to determine its new value. Since property values have drastically gone up recently, it will result in you having much more equity than you paid into your home when you first bought it. It's a reason why people often seek out a cash-out refinance, since it gives them access to that equity that they did not pay into. 

Cash-Out Refinances Can Be Used To Pay Off Other Debts

One reason that people seek out a cash-out refinance is that they are currently dealing with other debts. For example, credit card debts are often at a very high interest rate, and that interest will increase very quickly so it will often be hard to pay the debt down. If you can leverage the equity in your home to borrow money at an interest rate lower than your other debts, it may make sense to use a cash-out refinance to get the money that you need. You can then pay off your higher interest debts and take on a lower interest debt that you pay off gradually over time. In the end, you'll be using your cash-out refinance as a way to consolidate debt.

Cash-Out Refinances Can Be Used For Home Improvement Projects

It is always a good idea to use a cash-out refinance in a way that is going to benefit you financially. If you are borrowing money from the equity of your home, it makes sense to use that money to increase your home's value even more. This is why cash-out refinancing can be used for home improvement projects. Doing things like adding an addition that drastically increases your square footage is going to be an instant way that you can leverage your home's equity to create more equity. 

Reach out to a mortgage lender in your area for more information about cash-out refinancing and other mortgage refinancing options.