A cash-out refinanceis a way of refinancing an existing mortgage loan for a larger amount than the existing mortgage loan. The borrower gets the difference between two loans in cash.
Here’s an example to illustrate: Let’s say you own a $300,000 house and still owe $200,000 on the current mortgage. (This means you’ve built up $100,000 in equity – a fancy word for ownership). Now let’s say you want some extra cash to the tune of $30,000. You could do a cash-out refinance to get this money. If you did this, you’d get a new loan worth a total of $230,000 (the $200,000 you still owe on your home, plus the $30,000 you’re going to take out in cash).
Costs of a Cash-Out Refinance
A cash-out refinance in San Jose, in the Bay Area, or in California is similar to a regular refinancing of your mortgage in which you have the option to pay closing costs or no closing cost. The ultimate interest rate will slightly be higher in the second case.
Uses of the Cash
Rising home values in the San Jose area, Silicon Valley, the Bay Area boost homeowner equity. Cash from cash-out refinance can be used for paying off debts from the credit card, student loan, car loan, or planning vacations. More likely, try to pay off your high-interest credit cards debts to improve your credit score, get a better interest rate, and get mortgage interest tax benefits as well. Other beneficial areas of expenditure could be home improvement as it increases house value. One of the safest investments on earth is to invest in real estate as agreed by most successful investors. Cashing out from your equity to use as down payment for an investment property where your new mortgage obligations and housing expenses will be paid by the tenant. This will a good source of passive income when you retire.
Limitations of a Cash-Out Refinance
Cash-out refinance is not available in every situation. There are some prerequisites which you need to fulfill. For example – the minimum credit score should be maintained,and the loan-to-value ratio should not exceed a certain percentage, in many cases, it can go up as high as eighty five percent.
Alternatives
A cash-out refinanceadds to the monthly payment, so you can choose other alternatives like home equity loan (HEL) or a home equity line of credit (HELOC). A home equity loan or a home equity line of credit uses the existing mortgage only. A line of credit grants you credit at the time of need. You can withdraw any amount of cash up to a certain limit as per loan specifications. Home equity loan takes your home as security and act as a different loan on the existing mortgage. This home equity loan provides you cash in one lump sum amount with fixed interest rates.
Depending upon your needs and lifestyle, you can choose the most suited refinance option. If you need one lump sum amount while lowering your interest cash-refinance one new loan is for you. If you need a short-term loan, then go for a HELOC.
Contact 5 Star Lending to get best rates for cash-out refinance in San Jose, in the Bay Area, and in California.