A cash-out refinance is an option you might consider if you want to borrow money and/or consolidate existing debts. This type of refinance can help you cover your expenses,so here’s a few details that can help you decide if a cash-out refi might suit your financial situation.
Pros of a Cash-Out Refinance:
- Get cash for other expenses. The most obvious benefit of cash-out refinancing is that it provides you with cash you can use for a wide variety of purposes. In fact, you can do just about anything you want with the funds you receive. A lot of other forms of financing do not offer this type of freedom.
- Borrow a higher amount. Additionally, alternate forms of financing such as personal loans and lines of credit usually have much lower limits than what you can borrow through a refinance. So, even if you cannot borrow all you require via a personal loan, you may be able to using a cash-out refi.
- Consolidate debt. With a cash-out refinance, you can consolidate your debts. Use the funds to pay off high-interest loans, and you will have just the mortgage left over.
- Reduce your interest rate. When you refinance your mortgage, you may have an opportunity to decrease the interest you are paying. Maybe rates have dropped, or perhaps there have been improvements to your credit score or income. Either way, the amount you can save over time could be significant.
- Make other changes to your home loan. When you refinance your mortgage, you have a chance to not only change your interest rate, but also revisit other loan terms. For example, you can switch from an adjustable rate mortgage to a fixed rate mortgage.
- Make your financial life simpler. If you use a refinance to consolidate debts, you have just a single payment to make each month. That is less to keep track of, making it simpler and less stressful to manage your bills.
- Raise your credit score. One way you can boost your credit score is by reducing your credit utilization. If you consolidate the balance on your credit cards into your mortgage, that is exactly what you will accomplish.
Cons of a Cash-Out Refinance:
- Time and cost. The process of refinancing your mortgage involves a number of steps. It will take time out of your schedule and require that you make important financial decisions. At the end of the process, you will need to pay your closing costs.
- PMI. Sometimes, you will have to pay for private mortgage insurance (PMI) if you take a lot of cash-out as part of a refinance. This is a monthly added cost that can sometimes reduce the amount you might save through reduced interest.
- In many situations, it is possible to refinance to a mortgage that features lower rates and more favourable terms. But in some scenarios, refinancing could result in just the opposite.
Your Refinance Experts at First Residential Mortgage Are Here For You
If you need help evaluating the potential advantages and disadvantages of a cash-out refinance in your situation, please give us a call at (540) 838-5868. You can share the details of your scenario with our friendly loan experts, who will give you personalized advice. At First Residential Mortgage, we work with homeowners looking to save by refinancing in Blacksburg and throughout the state of Virginia.