Home equity is a powerful tool, and there are many ways to access it.
You can take out a home equity loan, get a HELOC, or, more popularly, do a cash-out refinance of your current loan.
This essentially replaces your existing mortgage with a new one — just one with a larger balance. You then get the difference between those two balances back in cash.
Depending on how much equity you have in your home, you could be able to access quite a bit of money through cash-out refinancing, which you can then use for any purpose you like — remodeling your house, paying for your children’s private school tuition, or even buying a vacation home or investment property.
Are you looking for a way to access the home equity you’ve built up in your house? Here are some advantages to choosing a cash-out refinance.
You’ll get a lower interest rate than other financing products.
Few financial products have rates as low as mortgages. Credit cards come with considerably higher interest rates, and personal loans are quite a bit higher too.
And out of mortgage products specifically? Cash-out refinances tend to have lower rates there as well. Both HELOCs and home equity loans — types of second mortgages — are a bit riskier for lenders and come with higher rates as a result. For these reasons, a cash-out refinance will often save you on interest in the long run.
There won’t be any additional monthly payments.
Other home equity products are second mortgages, meaning they come with an extra monthly payment — on top of your existing mortgage. This is inconvenient (you now have two due dates to contend with), and in some cases, might strain your budget too.
With cash-out refinancing, you replace your existing mortgage payment with a new one. You’ll still have just one payment to keep track of per month (though it may be slightly higher than the last one, depending on your loan terms and interest rate).
You can spread the costs out over a long period of time.
Cash-out refinance terms go up to 30 years, which means your balance is spread out over a very long timeframe. This reduces your monthly payment and makes it easier to take out cash without changing your current household budget.
It’s a great way to pay off other debts or invest.
Since cash-out refinances come with such low rates, they’re a great way to pay off high-interest debts, like credit cards or personal loans, for example. Using a mortgage loan to pay these off will often result in significant interest savings over time.
They can also be smart investment tools. If you take out $100,000 in a cash-out refinance at a 5% rate, then invest it in a mutual fund that averages a 10% return annually, you’re netting a solid profit. Cash-out refi proceeds can also cover the down payment and closing costs for investment properties, rentals, vacation homes, and other types of real estate you may be interested in buying.
You can write off the interest.
Finally, mortgage interest is tax-deductible. As long as you itemize your returns, you can write off the interest you pay on the loan across the year. If you paid discount points at closing, these are also deductible.
With home equity loans and HELOCs, interest is only deductible if you use the funds for home improvements. Credit cards, personal loans, and other financial products do not have deductible interest either.
Want to leverage your home equity?
If you’re considering tapping your home equity, a cash-out refinance might be the way to do it. Get in touch with Park Cities Mortgage today to discuss your options.
Park Cities Mortgage is an Equal Housing Opportunity lender. Sponsored by NTFN, Inc. 5950 Sherry Lane, Suite 230, Dallas, TX 75225 | NTFN NMLS 75333.