When you apply for a cash-out refinance, it means you want to take out some of that equity in a lump sum of cash. It also requires you to replace your current mortgage with a new one, but for more than you owe on your home. You receive the difference in cash to use as you please — pay off debt, home improvements, pay student loans. Although, as you’ll learn in this guide, some uses of the cash are better than others.

Pros of a cash-out refinance

You can reap a bounty of benefits if you meet these conditions:

• A lower interest rate. Refinancing your mortgage can lower your interest rate, especially if you purchased or refinanced your home a few years ago when rates were much higher. For example, if you bought your current home in 2018 your interest rate for a 30-year fixed loan could be as high as 5%. Today rates average between 3 to 4 percent. If you only want to lower your interest rate and don’t need the cash, you’ll do better with a regular refinance.
• A higher credit score. If you use the cash to pay off your outstanding debts, you’re on the road to increasing your credit score. That’s because you’ve decreased your credit utilization ratio or the percentage of your credit amount that you’re currently using.
• Debt consolidation and other uses for the cash. When you pay down your credit cards and other bills, you can then consolidate the remainder of the debt into one account with a lower interest rate. Other positive uses for the cash from a mortgage refinance include contributing to your retirement savings, starting or adding to a college fund, and making home renovations.
• A tax deduction. If you put the cash into home improvements, you may be able to write off the mortgage interest. Whatever modifications you make must substantially add to your home’s value in order to do this. These might include adding a stone veneer to the exterior, building a deck and patio, a major kitchen remodel, or updating a bathroom.

Cons of a cash-out refinance

There are a number of downsides to a cash-out refinance though, including:

• Requires an appraisal. Cash-out refinances require an appraisal by a certified, state-licensed home appraiser. This person determines your home’s value by visiting your property, comparing it to similar properties, and then writing a report using the data he’s gathered. An appraisal usually costs from $400-$600. Depending on the state of the real estate market, scheduling and completing an appraisal may take some time.
• Closing costs. You must pay the closing costs when you receive a cash-out refinance loan. Typically, these are between 2-5 percent of the entire new loan amount and include lender origination fees, attorney’s fees, and the appraisal fee, if you haven’t already paid that separately. Due to the high costs of a refinance, these loans are best when you’re taking out a large sum of money. For example, paying $5,000 in closing costs isn’t worth it if you’re only getting $10,000 in cash. You’re better off getting a home equity line, which comes with lower closing costs. But if you’re getting $100,000 cash from the transaction, it may be worth the extra fees.
• Private mortgage insurance. When you borrow more than 80 percent of your home’s equity or value, you’ll have to obtain private mortgage insurance (PMI). This insurance protects the lender in case you don’t make your payments. Currently, PMI costs from .05-1 percent of your loan amount. You usually have two options – a one-time upfront annual premium paid at closing or you can roll the PMI into your monthly loan payments. Generally, it’s not worth adding PMI to your loan just to get cash out of the home. Consider a home equity line or loan, which does not require PMI.
• Foreclosure risk. If, at some time in the future, you’re unable to make your mortgage payments, you risk losing your home due to foreclosure. Your home becomes the collateral for any kind of mortgage you have.
• Different loan terms. Your loan terms may change when you get a cash-out refinance. You’re paying off your original home loan and swapping it for a new one and that means new terms. Following are a few changes that could happen: The new mortgage may take longer to repay our monthly payments may go up or down Your interest rate could change. Be sure to read the Closing Disclosure to note your new loan terms. This is what to look for in the document.
• You don’t get your cash instantly. The processes involved with approving a mortgage loan or a refinance — an appraisal, the underwriting — may take 30-60 days, depending on how busy mortgage lenders are when you apply. On top of that, there is a 3-day “rescission period” toward the end of the loan where, by law, you can cancel the loan if you feel it isn’t the right move. All in all, a cash-out refinance is not a good solution if you need quick cash.

Best and worst uses of a cash-out refinance

Although the cash you receive from a cash-out refinance can buy whatever you please, you might want to consider the consequences of some of these purchases. Let’s start with some of the best ways to use your cash.

• Home improvement projects. According to HomeAdvisor the average cost to remodel a bathroom runs around $10,000, while the national average for a complete kitchen remodel is $25,100. For expensive improvements like these, a cash-out refinance can be the way to go. You’ll also increase the value of your home with certain improvements like those listed and energy-efficient appliances, adding more square footage like a new home office and replacing windows.
• Paying off credit card debt. This can be a good idea, as some credit card interest rates run as high as 18 percent. However, you’ll need to employ some tactics to keep from running up new balances on those credit cards. Stick to a budget that balances your expenses and your income. When you do make a credit card purchase, which you’ll want to do to rebuild your credit score, either have the cash on hand to back up that spending or pay it off right away. And, build up an emergency fund with what you would have been paying in credit card interest. That way you’re less likely to get into trouble with credit cards again.
• Add to your existing investments. This may be wise if those investments are gaining at a higher rate than your refinance rate. It’s best to check with a trusted financial planner before using this option.
• Purchase a rental property. This can be a positive use of the cash as long as you don’t mind all the work you’ll need to do. Investigate the legal and financial ramifications before going down this path.
• Buy a vacation home. If you don’t want to be a landlord, you could use the cash from your cash-out refinance as the down payment on your very own vacation spot.
• Put it to use for an existing business of yours or your new startup. Having emergency cash for a business can come in handy.

How to get a cash-out refinance

Now that you’ve decided a cash-out refinance meets your needs, what steps should you follow?

Check your credit score at one of the free sites like annualcreditreport.com or your credit union. Most lenders require a credit score of 620 or higher for a cash-out refinance. If your score falls below that, you’ll need to work on raising it before applying for a cash-out refinance. You’ll also need to check your debt-to-income ratio, which needs to be less than 40-45 percent. This is the amount of your monthly debts divided by your total monthly income.

You must have also accrued substantial equity in your home to take out a cash-out refinance. Removing 100 percent of your equity isn’t allowed unless you qualify for a VA cash-out refinance (requires military service history) and that lender allows a loan of 100 percent.

It’s a good idea to know how much cash you’ll need ahead of time. If you’re going to use the money for household improvements, first get some estimates from contractors so you’ll have a good idea of what those upgrades will cost. To pay off high-interest debt, like credit cards, tally that total before asking for cash-out refinance.

That way you only take out the amount of equity you really need and can leave some.

What are the alternatives to a cash-out refinance?

There are many scenarios in which a cash-out refinance is not the best loan option: You want to keep closing costs to a minimum You have less than 30-40% equity in the home You are seeking a relatively small amount of cash, say $5,000 – $20,000.

In these cases, you should at least consider a cash-out refinance alternative.

Home Equity Line of Credit: How is a HELOC different from a cash-out refinance?

A home equity line of credit (HELOC) differs considerably from a cash-out refinance. It’s still secured by your home, but it doesn’t replace your existing loan. It’s an additional, totally separate loan, which is why HELOCs are sometimes known as second mortgages.

You can think of a HELOC like an open-ended loan, somewhat like a credit card. You borrow against the HELOC as the need arises, and when you repay, you still have access to borrow again up to the available limit.

Most HELOCs come with an adjustable interest rate, which means the rate can change month to month. The lender allows interest-only repayments for a certain amount of time and usually the borrower can only access these funds for 10 years, which is called the draw period. When the draw period is over, you pay a regular monthly payment which will fully repay the mortgage balance, typically over an additional 10 years.

Home Equity Loan: How is a home equity Loan different from a cash-out refinance?

A home equity loan, also secured by your home, is for a fixed amount of money that you repay over a fixed amount of time. Like a home equity line, it’s an additional loan that sits on top of your current primary mortgage.

But unlike a home equity line, you don’t have access to borrow funds again and again. So these are better for one-time projects.

The amount you can borrow is usually 85 percent or less of the equity you have in your home. Your income, your credit history, and the market value of your home also factor in to determine how much you can borrow.

This is the main difference between a home equity loan and a cash-out refinance.

Home equity loan: Is a second mortgage on your home. The existing primary mortgage stays intact

Cash-out refinance: Converts your current mortgage into a separate larger one, with up to 30 years to pay it off. In the end, you just have one loan.

Would a cash-out loan, home equity loan, or a personal loan work best for your situation?

How long you’ve owned your home, and your current interest rate should factor into your decision about what type of loan will work the best for you. Consider the following scenarios and decide which one fits your circumstances:

Scenario 1: High Current Rate, Lots of Equity

Homeowner No. 1, a couple, has a high-interest rate (8% or higher) on their current mortgage and they’ve earned a sizable amount of equity (70-85%). This homeowner wants to lower their interest rate and at the same time pull out some cash. The home is old enough that some home improvements won’t wait much longer, plus they’d like to increase the value of their property in case they want to sell and downsize in the future. Homeowner No. 1 is a good candidate for a cash-out refinance.

Scenario 2: New Homeowner, Little Equity

Homeowner No. 2, a family, recently bought the home they’re living in, so they don’t have much equity yet. This family looks forward to sending their son to college in two years but doesn’t quite know how they’ll afford it without burying them all in student loan debt. Other homeowners in this category might need money for household repairs, or to pay their credit card bills. All these homeowners will be best suited to either a personal loan or a personal line of credit.

Scenario 3: Homeowner with Equity and a Low Rate

Homeowner No. 3, a single man, already has a very low mortgage rate and can’t see how he can get a better one. Still, he needs money to replace appliances, which all seem to be breaking at the same time. Refinancing isn’t a good option for him, since he’ll lose his current low rate and would have to accept a higher interest rate. So he’s going to check into adding a home equity loan or a home equity line of credit to his existing first mortgage. See below for more information on how home equity lines/loans work.

Get approved for a cash-out refi

During the approval process, the lender may ask you for additional documents like bank statements, pay stubs, or income tax returns. Having these financial papers readily available will help streamline your approval.

Address any questions you have to your lender. Soon you’ll have the cash you need.

The post Cash-out Refinance | Pros & Cons 2024 first appeared on My Mortgage Insider.

Cash-out refinancing for primary residence (owner-occupied) homes are gaining in popularity, but so are cash-out loans for investment properties or second homes.

While they were hard to come by just a few years ago, many lenders now offer investment property owners the chance to cash in on their non-owner-occupied homes’ equity.

Check your cash-out refinance interest rates. Start here (Sep 16th, 2024)

Cash-out refinance for investment properties

If you’re someone who generates income from rental properties, then a cash-out refinance could be a great strategy for you. Cash-out refinancing could help you grow your rental income, for instance, if the cash is for home improvements. Many cash-out refinance applicants lower their existing mortgage interest rate while taking cash out, improving their positive cash flow.

Here’s what you need to know about the cash-out refinance rules as they apply to investment properties, and if you’re a good candidate.

Do you have equity in your rental property?

As with most cash-out refinancing programs, the more home equity you have, the better position you’ll be in to qualify and reap the benefits of a new loan.

For a non-owner-occupied refinance, most lenders will loan up to 75 percent of the appraised value of the home, the maximum set by Fannie Mae. In rare instances, you could find lenders that will go up to 80 percent, but these are probably the bank’s proprietary mortgage loan programs for which they charge a higher rate.

In other words, in order to make a cash-out refinance loan worth your while, you’ll need to have a certain amount of equity. Rental properties with 30 to 40 percent equity are the best candidates for cash out. Homeowners who purchased years ago might even drop their rate while taking cash out.

Check your cash-out refinance interest rates. Start here (Sep 16th, 2024)

Non-owner-occupied cash-out refi rules

Here are some recent eligibility requirements and guidelines for cash-out refinances on rental properties as set by Fannie Mae:

• The maximum loan-to-value ratio is 75% for 1-unit properties and 70% for 2- to 4-unit properties. These maximums are lowered by 10% for adjustable-rate mortgages.
• If the property was listed for sale in the last six months, the maximum LTV is 70%.
• The property must not be listed for sale at the time of home loan application.
• The property is not eligible for a cash-out refinance if it was purchased within the last six months. There is an exception for properties that meet the Delayed Financing guidelines.

Delayed Financing Rule: A rental property that was purchased within the last six months is eligible for a cash-out refinance if:

• The new loan amount is no more than the original purchase price plus closing costs.
• No mortgage financing was used for the home purchase unless the financing was on another property.
• The transaction was arms-length, meaning the seller did not have a pre-existing relationship nor financial interest in the sale besides the sale itself.
• The buyer has a final Closing Disclosure (final settlement statement) showing the purchase price and other details of the transaction.

Non-owner occupied cash-out refinances: Best for above-average applicants

Cash-out loans are risky business for lenders, especially in the case of those who are not living in the homes they are refinancing. That’s why qualifications are rigorous, and you can expect more paperwork than you would from an owner-occupied or no cash-out refinance.

For example, candidates must have a great credit score and 6 months’ worth of assets to handle the current mortgages on their rental and primary residences.

For qualifying borrowers, a cash-out refinance can allow you to turn your home value into cash without a second mortgage like a home equity loan or a home equity line of credit (HELOC). The interest rates on a cash-out refinance can be far more affordable than the rates associated with credit cards or personal loans.

Applicants will also have to present tax information, rental lease agreements, property value, and other property income information. Finally, if you already have more than four financed properties, some lenders may not accept your loan.

Check your investment property refinance rates. Start here (Sep 16th, 2024)

Is a cash-out refinance right for your investment property?

If you think you have ample equity, meet borrower requirements, and will benefit from a lower interest rate, there are just a few more things to consider before you move forward with cash-out refinancing.

For starters, work out how much your mortgage payment will increase, if any, by adding principal to your existing loan balance. Will your rental income be able to cover the increase?

Also, consider whether you will purchase more rental properties. Taking on additional debt could shift your debt-to-income ratio (DTI) in a way that affects your eligibility for future loans.

Also, because it will take time to see an income return on your refinancing, be sure that your cash-out loan will help you in the long run, not just to have some cash in the short term.

You also need to carefully go over the terms of the loan to be sure it makes sense for your investment goals. For example, it will now take longer to pay off the mortgage on your property.

Different lenders will have varied loan terms for non-owner-occupied refinances, including adjustable-rate mortgages versus fixed-rate. If you opt for an adjustable-rate mortgage, you have to be very confident that you will be able to handle fluctuations that may arise. This is why most property owners choose a fixed-rate mortgage when real estate investing.

Check your investment property refinance rates. Start here (Sep 16th, 2024)

Cash-out refinance FAQ

Can I get a cash-out refinance with an FHA loan or a VA loan?

Both the Federal Housing Administration (FHA) and Veterans Affairs (VA) loan programs offer cash-out refinance programs. However, neither program is intended to be used to purchase or refinance a second home or investment property.

What is the max LTV for investment property cash-out refinance?

Most cash-out loans for investment properties have a maximum LTV ratio of 70-75%, which will allow you to access between 25-30% of the home’s equity in cash.

What is the maximum loan-to-value ratio for a one-unit investment property?

The maximum LTV ratio for a one-unit property is 75%.

Can I get a cash-out refinance for an investment property?

Yes, there are refinance programs that will allow you to convert the equity you have in a second home or investment property to cash.

Where to apply for a rental property cash-out refinance

Once you factor all of the above into your decision, you may find that a cash-out refinance on your investment property can help you buy more rental homes or make improvements on existing properties.

The key with this option — as with any refinancing — is the new mortgage should either lower your monthly payments right away or put more cash flow into your pocket over time. If a non-owner-occupied cash-out refinance has one of those outcomes, then you should speak with a lender who specializes in these loans.

Most of today’s lenders offer cash-out refinances on rental properties at similar terms. You can get started on your application now. A loan officer can pre-qualify you and give you a rate and payment quote, which is the first step to making sure this type of mortgage refinance is the right move.

Check your cash-out refinance interest rates. Start here (Sep 16th, 2024)

The post Investment Property Cash-out Refinance | 2024 Guidelines first appeared on My Mortgage Insider.

You bet you can. Lenders are happy to use the real estate equity you have built up in your home to give you a loan for other needs.

Access home equity with a cash-out refinance

Taking out a new loan on your paid-off house is a big decision, and you really need to think about the ramifications. If you fall behind on repayment, you could risk foreclosure. Whether it’s the right choice will depend on your personal financial situation.

Any loan that isn’t considered a purchase is called a refinance — despite the fact that there isn’t a loan to pay off.

Lana Jern, Owner of Uptown Mortgage

“Anytime you are taking money against your property, you are taking a debt that you didn’t have before,” Jern says. “How you will repay that loan is something to consider.”

She recommends that if you need a lump sum of cash, you consider another way to find the loan amount than borrowing against your primary residence. It’s possible that another type of loan — such as a personal loan — might offer lower interest rates.

For example, if you need to pay for your daughter’s college tuition and she needs a car, too, there might be several ways to find the funds instead of getting a new mortgage. Maybe your daughter can apply for a student loan through her college or the government, or you can acquire a low-interest car loan for the car she needs.

Before you decide to proceed with a cash-out refi or a second mortgage, consider how mortgage rates compare to the interest rates on other loan options. Though mortgage interest rates are often relatively low, it’s not always worth it to put your primary residence on the line — especially for non-essential expenses.

How to access home equity if you’ve paid off your mortgage

The process of borrowing against your home equity will be similar to the application process for your original mortgage when you purchased the home.

A lender will consider factors including your income, credit score, and debt-to-income ratio before issuing you a mortgage.

Conventional loans, HELOC & more: Refinance options

When you’re getting a cash-out refinance, you have a number of different home loan options to choose from. Different types of mortgages carry different loan terms, and different loan limits and some require monthly mortgage insurance.

The best option for converting your homeownership into cash will depend greatly on your personal finances.

Cash-out refinance: FHA vs conventional mortgages

If you’re sure a cash-out refinance loan is the right option, you can get a Freddie Mac or Fannie Mae mortgage refinance, or you can get one through the FHA loan program (which is backed by the Federal Housing Administration).

The amount of cash you can access will depend on your mortgage balance and your home’s market value.

With a cash-out refinance, borrowers can take out 80 percent of the home’s value in cash. This unaccessed amount of equity is functionally similar to the down payment made when home buying.

With an FHA cash-out refinance, the FHA loan limit is 85 percent of the value of your home. It will still be subject to FHA mortgage insurance which means you’ll have to pay a mortgage insurance premium (MIP) for the life of the loan and an upfront mortgage insurance premium. In addition to the cost of the insurance payments, an FHA cash-out refinance is also likely to carry a higher interest rate, especially for borrowers with lower credit scores.

For some people, taking out a cash-out refinance for an investment can be quite profitable.

“Let’s say you take out $100,000 cash from a refinance and invest it into creating more assets. If you put back more than what it cost you, then great,” she says.

For example, it could be worthwhile to use that cash for valuable home renovations or to make a down payment on an investment property.

For more information on the pros and cons of each, check out these articles:

• Conventional cash-out refinance
• FHA cash-out refinance

Alternatives to cash-out refinance: HELOC & reverse mortgages

A cash-out refinance isn’t the only way to turn your home equity into cash. It’s also worth talking to your mortgage lender about a home equity line of credit (HELOC) or a reverse mortgage.

If you need house repairs, Jern says, a home equity loan may work out better in the long run.

“If your home is paid off, you can apply for a home equity loan without much hassle,” she says. “However, a HELOC should be put in place before any emergency happens. It lasts 10 years, and you never ever have to take money out of it. But if you need it, it is there.”

Keep in mind though, if you haven’t set up a HELOC and your husband breaks his leg and can’t work, the lender won’t then give you the equity line of credit.

It doesn’t cost anything to set up a HELOC. This is a very inexpensive way to set up some security for the future. If you do a cash-out refinance, then you’ll have to pay closing costs. A HELOC is the cheapest money you’ll ever get.

Lana Jern, Owner of Uptown Mortgage

Reverse mortgages can help older homeowners with things like medical expenses. The government doesn’t let you take more than 50 percent out in a refinance than the value of the property. The owners of the house can live in their home the rest of their lives with this sort of loan.

“Reverse mortgages can be an affordable option for older people that allows them to have the lifestyle they want like the ability to travel or take care of their house,” she says.

Check your eligibility for a HELOC here (Sep 16th, 2024)

For more information about these other mortgage options, check out the full articles below:

• Home equity line of credit (HELOC)
• Reverse mortgages

A final note on cash-out refinances

When you get a new mortgage loan you’re taking on more risk. You put all the work into paying off the loan balance on your first mortgage so consider whether you want to re-introduce monthly payments into your budget. And, you’re going through the underwriting process with all the verifications and paperwork required that you did when you bought your home.

The government has put in some laws to protect consumers in situations like cash-out refinancing and HELOCs. Under the Truth in Lending Act, you have the right to rescind your HELOC or refinance loan within three days of closing.

“The government wants people to have time to go home and determine if they can really afford it,” Jern says.

For example, a cash-out refinance might make sense if you’re planning to make home improvements. You might use the money to pay off high-interest debt. This could be a good strategy if you want to do some debt consolidation and pay off credit cards — as long as you don’t accrue more credit card debt again going forward.

Bottom Line: Make sure that a cash-out refinance is the best financial choice for your situation — there may be other financing options available to accomplish your goals.

The post Cash-Out Refinance With No Mortgage | Requirements 2024 first appeared on My Mortgage Insider.

Pros & cons of tapping home equity

Traditionally, seniors don’t tap into their home equity for retirement income.

“I believe many people in their 70s and 80s look at it as welfare,” says Mary Russell, broker/owner at Mortgage Results in Aptos, Calif. “They feel they won’t be able to leave anything for their kids, and their kids are against it, too, because it takes away from their inheritance. That’s not true.”

Russell has worked with many people during their retirement years to use the equity in their homes. It all comes down to the fact that if they have equity in their home, they can use it to live a better life, pay for remodeling or a grandchild’s college or do anything else they want.

According to a recent survey by Voya Financial, 85 percent of non-retirees said they want to own their own home in retirement. However, a quarter of retired respondents revealed they still had a mortgage, and over half of this group had a balance of $50,000 or more.

Best options for accessing home equity

Here are a few options that seniors can use to access home equity:

Cash-out refinance

A cash-out refinance is a new mortgage results in the borrower getting cash in hand at closing or paying off debt that was not used for the purchase of the home. Cash-out refinances can help improve cash flow by paying off other debts with higher interest rates or payments.

These refinances can also be good sources of funding for education for children or grandchildren. The money can be used for just about anything including home improvements, investments or medical bills.

Home equity line of credit (HELOC)

A HELOC works like this: a lender agrees to give up to a certain amount based on the homeowner’s equity over a fixed time. This allows the retiree revolving access to approved funds. Unlike credit card debt, HELOCs are secured by equity and present less risk to lenders, according to the Urban Institute study titled Seniors’ Access to Home Equity.

Charitable home remainder annuity

It’s another planning tool, Russell says. It lets you convert your real estate into lifetime income. It reduces your income taxes now and estate taxes when you die. You pay no capital gains tax when the asset is sold. Basically, you will your home to a charity in return for an annuity that lasts the homeowner’s lifetime or another set amount of time.

Sell the home

This can give seniors a chance to downsize, rent or buy into a retirement community or long-term care community.

Home-share

This growing trend helps retirees share their extra private spaces with the appropriate adult guests. Many states, cities and senior organizations have begun to help match seniors which helps bring in extra income, reduces the load of household chores and gives instant companionship.

For instance, the New York Foundation for Senior Citizens’ free Home Sharing Program helps link these home sharers. One of the home-sharers must be age 60 or older. Professional social work staff comprehensively screen and check the references of all host and guest applicants.

Russell says that each retiree who is looking to increase their income should talk with their financial professionals and family members to talk about options and what would be best for their situation – financially and emotionally.

Reverse mortgage

Also called Home Equity Conversion Mortgages or HECMs, are government-insured loans allowing those 62 and older to extract from their home equity. There are many types of reverse mortgages; ones that pay off our existing mortgage and give you extra cash; others that give out monthly payments; and others that give a lump sum.

Russell works with many who use reverse mortgages to change their lives. She believes many people are confused and turned off of reverse mortgages because of past bad media. The Department of Housing and Urban Development and the Federal Housing Administration (FHA), which are responsible for many of the reverse mortgages, released new rules and regulations, she adds.

“In the past, people felt that the bank owns their house, and they will take it away from them,” she says. “And in the past, they used to. If one of the spouses died, the other was kicked out. That can’t happen anymore with reverse mortgages.”

According to the National Reverse Mortgage Lenders Association, today’s reverse mortgages are determined by a formula based on the home’s appraised value, the youngest borrower’s age and current interest rates. And counseling is required for all HECMs.

Reverse mortgages can help seniors get money for their grandchildren’s education, they can travel the world, they can repair their home, or they can get home healthcare. There are so many options when using a reverse mortgage, Russell adds.

One client who used a reverse mortgage was the mother of one of Russell’s friends, who was 94. She wanted to stay in her home but nursing expenses to keep her there had risen to $14,000 a month. She owns a $1.5 million home in California without any payments left on it. A reverse mortgage gave her $14,000 a month so she can stay in her home and have the nursing taken care of.

“Now, her daughters don’t have to bring mom into their homes, and everybody wins. That one did my heart good,” Russell says.

The bottom line

Seniors who wish to tap their home equity in order to supplement their retirement income have a number of options available to them. A lender can help you determine which one is best for your unique financial situation.

The post 6 Ways Seniors Can Tap Home Equity To Supplement Income first appeared on My Mortgage Insider.

Converting all your monthly payments to one bill can simplify your life. Plus, if your credit card or car loan is carrying a high-interest rate, you might be able to benefit from a lower mortgage interest rate.

Debt consolidation using home equity is one option to consider. Let’s explore your cash-out refinance options for debt consolidation.

Check your cash-out refinance options. Start here (Sep 16th, 2024)

What is a cash-out refinance?

A cash-out refinance involves taking out a new mortgage to replace your existing mortgage. The new mortgage is for a larger loan amount than what you currently own on your home loan. You’ll receive the difference in cash that can be used for whatever you like, including to pay off other high-interest debt you may have.

How to get a cash-out refinance for debt consolidation

Let’s explore how you can move forward with a cash-out refinance.

Requirements for a cash-out refinance

If you’ve decided that a cash-out refinance is the right move for your debt consolidation needs, the process starts by making sure you meet the requirements.

In order to move forward with a cash-out refinance, you’ll need to:

• Have more than at least 20% equity in the home
• Have a credit score of at least 620
• Have a debt-to-income ratio of 43% or less
• Be willing to submit to a new appraisal

If you meet those basic requirements, then you may be able to obtain a cash-out refinance.

Step-by-step guide to getting a cash-out refinance

The process of getting a cash-out refinance is very similar to getting a traditional mortgage. Here’s a breakdown of the steps you’ll need to take:

1. Shop around to determine which lender is offering the best rates
2. Submit an application with the best lender for your situation
3. Provide all requested documents, including your pay stubs, W-2 forms, and tax documents
4. Agree to a home appraisal
5. Wait for the loan underwriter to review your documents and check your credit report
6. If approved, all that’s left is to sign your closing documents

If all goes well, your cash-out refi should move forward within a few weeks. Depending on the lender, you may need to pay your closing costs upfront. If that’s the case, be prepared to bring that money to closing.

Pros & cons of using a cash-out refinance for debt consolidation

Every financial product has advantages and disadvantages. Here’s what to know about using a cash-out refinance for debt consolidation.

Click here for your cash-out refinance rates (Sep 16th, 2024)

Using a cash-out refinance for debt consolidation

A cash-out refinance — sometimes described as a debt consolidation mortgage — is one relatively popular way to get debt under control.

Because a cash-out refinance loan is secured by your home, it’s important to understand that it does come with high stakes.

“If you do use home equity and then get more debt, you put your home at risk,” says Scott Halliwell, a certified financial planner with USAA.

But he admits that sometimes life throws out unexpected things such as medical bills, and not everyone who needs debt consolidation does it because of bad debt.

“Through no fault of their own, sometimes people face a financial train wreck. Sometimes, a debt consolidation loan can help them out,” he says.

But for those who got themselves into this financial trouble by racking up credit card debt to buy bigger and better things, then he warns that debt consolidation will not help unless bad spending behaviors and attitudes are changed.

“People can change. But that normally requires some kind of life change such as they get a second income with a spouse, they get an inheritance, or they get a new job with a big pay increase. Those events become the catalyst to fix their spending problem,” he says.

Check your eligibility for a cash-out refinance. Start here (Sep 16th, 2024)

Run the numbers of a cash-out refinance before jumping in

The first thing Halliwell suggests borrowers do is call their current lender and get an amortization table. Many of these tables are available online now, too. This can help you understand the long-term costs of a refinance.

“It can be very valuable to start there and look at your current loans. You can figure out if you leave the current loan alone or you consolidate and how much it will cost you or save you,” he says.

He also said talking to a financial planner, your accountant or even someone in your family who understands finances is a good step to take before signing any new loans.

“At least this way, you are making some level of an informed decision. Know what the financial ramifications are instead of just knowing the payment plan,” he says.

Halliwell would only encourage someone to get a debt consolidation loan if it results in paying less interest over time. For instance, you probably wouldn’t want to consolidate a car loan that you’ve been paying on for four years and only have one year left.

“Most of the car payment is now going toward principal. You don’t want to stretch that back out to a 30-year loan,” he says.

Evaluate your reasons for getting a cash-out refinance

Enrica Bustos, a former housing counselor at Adams County Housing Authority in Commerce City, Colorado, feels that using the equity in your home to pay off credit cards is a bad thing.

“It’s just better to live within your means and pay off those credit cards one at a time,” she says.

She feels that the equity of your home should only be used in extreme cases, like a medical emergency or urgent home repairs.

“Everyone wants the biggest and best right off the start. That’s how so many get into financial trouble,” she says. “No one ever realizes that they can work up to that. Debt consolidation loans do allow people to pay off their credit cards. But they can use them again.”

Bustos has seen too many people never cut up those cards and then eventually max them out again.

“Instead of debt consolidation, I recommend doing a crisis budget. They need to pay off one credit card at a time. This way, they don’t touch the equity in their home,” she says.

When she works with credit counseling clients and they are thinking about a debt consolidation loan, she talks with them about the extra costs they will incur especially by doing a refinancing loan.

“They don’t realize they will have to have another appraisal which costs money. They will have closing costs, too. Is paying $4,000 for closing costs to get $8,000 off of your debt really worth it?” she says. “The fine line about debt consolidation is: How will the person go forward? Will they charge up the card again?”

Check your eligibility for a debt consolidation refinance. Start here (Sep 16th, 2024)

Alternatives to using a cash-out refinance for debt consolidation

When consolidating debt, a cash-out refinance loan isn’t the right solution for everyone. But that’s okay. There are other debt consolidation solutions out there, including:

Home equity loans

If you want to tap into your home’s equity without touching your current mortgage, a home equity loan is an option. A home equity loan is a “second mortgage,” which means you’ll pay it off by making a second monthly payment in addition to your existing mortgage.

Since it’s a second loan, you won’t have to make any changes to your current mortgage. That’s great news if you already have a rock-bottom interest rate on your home loan. You’ll still be able to access your home’s value at the current market rates.

Home equity lines of credit

A home equity line of credit (HELOC) is another type of second mortgage, also tied to the equity you have in your home. Unlike a home equity loan, a HELOC is a new revolving line of credit rather than an upfront lump sum. It works more like a credit card in that you can borrow up to a stated limit.

Personal loans

If you aren’t comfortable using your home as collateral or simply don’t have enough equity built in your home, a personal loan can allow you to access a lump sum of cash that can be used for debt consolidation.

Since these are unsecured loans, they aren’t tied to your home equity but they also carry higher interest rates and lower limits. Still, depending on how much interest you’re paying on your existing debts, they could potentially save you money and you won’t have to worry about foreclosure if you miss a debt payment.

Should you use a cash-out refinance for debt consolidation?

A cash-out refinance is a useful opportunity for homeowners with substantial equity in their homes. If you have enough equity, a cash-out refinance is an option. It’s usually not a good idea to get a cash-out refinance if you will be stuck with a significantly higher interest rate than your current mortgage.

But in some cases, it makes sense. For example, if you have high-interest debt, you might find that the fixed-rate mortgage which comes with your mortgage is more affordable.

Run the numbers before jumping in to determine whether or not this is a helpful option for your debt consolidation needs.

Check your cash-out refinance options. Start here (Sep 16th, 2024)

Cash-out refinance FAQs

What are the requirements for a cash-out refinance?

If you want to get a cash-out refinance, you’ll need to have more than 20% equity in your home and a credit score of 620 or higher. Additionally, when you include the new loan, you shouldn’t have a debt-to-income ratio of more than 43%. Be prepared to submit your home to a new appraisal and verify your income.

Is debt consolidation refinance considered a cash-out refinance?

Yes, a cash-out refinance can be used as a debt consolidation refinance. When you pursue a cash-out refinance, you’ll have the option to pay down other debts with the proceeds.

Can you pay off collections with a cash-out refinance?

Yes, you can use the funds you obtain from a cash-out refinance to pay off collections. After your cash-out refinance is complete, you’ll have the freedom to use the funds however you see fit.

When should you not do a cash-out refinance?

A cash-out mortgage refinance isn’t always the right solution for your finances. When you pursue a refinance, you’ll have to pay closing costs to finalize the loan.

Additionally, you’ll need to consider the new interest rate attached to your mortgage. If mortgage rates have gone up, then it might not be the right time to take out a mortgage.

Another consideration is the type of debt you’re hoping to pay off with the funds. For example, consolidating federal student loans is usually not the right move. If you refinance federal student loans, you’ll eliminate the extensive borrower protections available.

Can you refinance a debt consolidation loan?

If you took out a debt consolidation loan, it’s possible to consolidate it with your mortgage loan through a cash-out refinance. But you’ll have to decide if that’s the right choice for your financial situation.

Do you count debt in DTI when consolidation?

When you pursue cash-out refinancing, lenders will look at your debt-to-income ratio. Typically, a DTI ratio higher than 43% will disqualify you from taking out a new mortgage. All of your debt, including the debt you plan to take out, will be included when calculating this ratio.

Check your eligibility for a debt consolidation refinance. Start here (Sep 16th, 2024)

The post Should I Open a Cash Out Refinance to Consolidate Debt? first appeared on My Mortgage Insider.

It doesn’t have to be that way.

With the right financing, an in-ground pool may be more affordable than you think, while also bringing years of enjoyment and adding to your home’s value.

There are four good options to finance a swimming pool:

• Home equity loans (HEL)
• Home equity lines of credit (HELOC)
• Cash-out refinance mortgages
• Personal loans

Check your pool financing options here (Sep 16th, 2024)

How much pool can you afford?

Pool prices have surged over the past year because of supply and labor shortages. According to HomeAdvisor.com, the average cost of a pool installation is about $34,000.

Above-ground pools cost a lot less — up to $5,000 or so — while in-ground pools could cost anywhere from $20,000 to $100,000.

In-ground pools tend to add more home value than above-ground pools because they’re generally considered more aesthetically pleasing.

How much you’ll spend also depends on the pool’s size and shape, the construction materials (concrete, fiberglass, or vinyl), the installation costs, and any “extras” like a hot tub, slide, or a diving board.

Also, keep in mind that many homeowner’s insurance policies and local laws require fencing around pools to protect children and pets from falling in.

In-ground pool installation & construction cost breakdown

Source: HomeAdvisor.com’s True Cost Guide

You’ll also need to factor in ongoing maintenance as well as the increased utility costs, which can range between $500 to $4,000 per year depending on what type of pool you get.

Over a 10-year period, those costs can range from around $5,000 up to over $40,000.

Step-by-step guide to financing a pool

Before we get into the details of pool financing, here’s a brief step-by-step overview.

Financing a pool works a lot like financing any other home improvement project.

• Step 1 — Work on your credit score: Borrowers with excellent credit can borrow more at lower rates. Check your credit score and improve it by making on-time payments on your debts and paying down balances. Disputing errors in your credit history can increase your score.
• Step 2 — Plan the project: How much room do you have on your lot for a pool? What kind of pool do you want? Find some good pool companies to help answer these questions.
• Step 3 — Estimate the cost of the project: In-ground pools cost a lot more than above-ground pools. Extras like diving boards, slides, and heaters will add to the cost. A pool house could double the cost.
• Step 4 — Decide which type of financing to use: Unsecured personal loans are fast and convenient. But second mortgages cost less in the long run. Banks, credit unions, and online lenders usually offer most types of financing.
• Step 5 — Apply for the loan: Shop around with at least three different lenders for your loan type’s best rates. Understand your loan’s repayment terms before moving forward.

Once you have financing, you’ll be ready to start the project.

But first: Step 4 needs some more exploration. What is the best type of financing for a pool?

Check your eligibility for pool financing here (Sep 16th, 2024)

Best way to finance a pool: Unsecured or secured?

How much you can spend on a pool and its installation will depend a lot on how you finance the project.

Pool stores and some banks offer “pool loans” which are really just unsecured personal loans. Since they’re not secured by property, these loans charge higher interest rates than secured loans like mortgages.

Depending on your credit history, a pool loan rate may be in the double digits.

Still, compared to getting a loan that’s secured by your home value, a pool loan can close a lot faster and costs less upfront. You could get the funds within a week instead of several weeks.

Plus, you wouldn’t have to tie up any home equity. The equity would be there later if you needed it to back a debt consolidation or home improvement loan.

Unsecured pool loans have their advantages. But if you’re interested in getting the best interest rate and saving thousands of dollars in finance charges, a secured loan will be the way to go.

How interest rates affect swimming pool financing

Shoppers tend to compare pool costs — such as materials, construction, and maintenance — without paying much attention to finance charges.

But, if you’re on a fixed budget, finance charges will impact all your other decisions about materials and construction.

Let’s say you have room in your monthly budget for a pool payment of $500. You decide to spread the repayment across a loan term of 15 years:

• At 6% interest: You could borrow about $60,000
• At 8% interest: You could borrow about $52,000
• At 10% interest: You could borrow about $46,000
• At 12% interest: You could borrow about $42,000

All of these loans would require monthly payments of about $500 a month, but your pool buying budget would be a lot bigger at 6% interest compared to 12% interest.

Secured loans provide the best way to get interest rates on the lower end of this scale.

Secured financing for swimming pools

When you use a mortgage product to finance a pool, you’re leveraging the value of your home to get a lower interest rate.

There are three ways to use the value of your home to get more affordable pool financing:

• Home equity loans: These work like personal loans. They have fixed rates and fixed monthly payments. But since they’re secured by your home equity, you can get a much lower rate. These loans are ideal for big home improvement projects, including installing a pool.
• Home equity lines of credit (HELOC): A HELOC works more like a credit card but with a much lower rate since your home equity guarantees the credit line. You could withdraw and repay money from the line of credit as needed. HELOCs work well for projects you’ll complete in phases.
• Cash-out refinance: A cash-out refinance would pay off your current mortgage while also adding in more money to pay for the pool. You’d end up with one loan that combines both the pool and your existing mortgage debt.

Each loan type has its own pros and cons, and the best choice will depend on your situation. We’ll explore each option more below.

Whatever you decide, avoid financing your swimming pool with credit cards, which carry significantly higher interest rates.

Home equity loans

Also known as a “second mortgage,” a home equity loan pays a lump sum at a fixed interest rate, which you typically have to repay in 10 to 15 years.

The lender may charge closing costs, but they should be lower than the first mortgage loan costs. Some lenders don’t charge closing costs in exchange for a higher interest rate.

The interest may be tax deductible. (According to the new IRS rules, if the loan is used to “buy, build or substantially improve the taxpayer’s home that secures the loan,” then the interest can be deducted. Consult with a tax professional to confirm.)

The downside of a home equity loan is that you have to borrow — and pay interest on — the entire lump sum instead of borrowing smaller, incremental sums as needed.

For that, you’ll want a home equity line of credit.

Home equity loan pros and cons

Pros:

• Fixed interest rate and payment
• Average-to-good credit OK
• Lower rates than personal loans
• Low closing costs

Cons:

• Requires a new lien on your house
• Ties up home equity
• Slower closing times than personal loans

Home equity lines of credit (HELOCs)

A home equity line of credit (HELOC) is a revolving line of credit that lets you borrow against your home value. It works like a secured credit card, but instead of depositing money into a bank account for use as collateral, the lender uses your home as collateral.

The lender uses your home’s appraised value (minus what you still owe on the mortgage) as well as other factors like your credit history, debt, and income to determine your credit limit.

Once you’re approved for a HELOC, you’ll receive a set of blank checks or a credit card to use for withdrawing funds. You can withdraw only the money you need — as you need it — to pay for the excavation, pool, fence, installation, and extras.

This lets you avoid paying interest on money you haven’t spent yet. Monthly payments will be based on what you’ve withdrawn so far.

HELOCs usually have variable interest rates, though some lenders will convert HELOCs to a fixed rate for all or part of the balance. At some point, usually within 10 years, a HELOC will automatically convert to an installment loan, and you won’t be able to draw money after that.

Banks and credit unions usually offer HELOCs, but many online mortgage lenders don’t.

HELOC pros and cons

Pros:

• Borrow and repay funds as needed
• Low closing costs
• Competitive interest rate
• Average credit or good credit is usually OK

Cons:

• Variable mortgage rates
• Ties up home equity
• Places a new lien on your house
• Slower closing times than personal loans

Cash-out refinancing

A cash-out refinance combines the cost of your new pool and your current mortgage debt into one, new loan amount.

For example, if you need $50,000 for a pool, but still owe $100,000 on your house, you can refinance the mortgage for $150,000 and use the extra $50,000 to cover the pool costs.

You’ll end up with one monthly payment instead of two.

If you can improve your current mortgage by getting a lower rate or changing the loan’s term, a cash-out refi can do that while also rolling in the cost of a new swimming pool.

But if you’re happy with your current mortgage because of its low rate, or because it’s almost paid off, this loan option isn’t for you. Instead, keep your current mortgage and use a second mortgage or a HELOC as a separate swimming pool loan.

The application process for a cash-out refinance is almost exactly like getting a primary mortgage. The loan will require a full set of closing costs. The amount of cash back you can get will depend on the value of your home, your monthly debts, and your credit score.

Like the home equity loan and the HELOC, the interest paid on a cash-back refinance may be tax deductible for home improvements.

Cash-out refi pros and cons

Pros:

• Combines house and pool costs into one loan
• Can lower the interest rate on all mortgage debt
• A chance to change current loan term

Cons:

• Not ideal if you already have a good mortgage rate
• Not ideal if home is almost paid off
• Full loan closing costs required
• Could take up to weeks to get funds

Check your eligibility for a cash-out refinance (Sep 16th, 2024)

Unsecured personal loans or “pool loans”

Another way to finance a new pool is through an unsecured personal loan, also known as a pool loan. Pool stores may offer this kind of financing, and they may even advertise zero interest for the first few years.

But, eventually, most personal loans cost more than secured financing. Over time, their higher finance charges add more and more to the cost of the loan.

Unsecured personal loans have to charge higher interest rates because lenders would have no way of recovering their losses if you failed to make payments. With a mortgage loan, the lender could foreclose and sell your home.

But these pool loans also have their advantages:

Pool loan pros and cons

Pros:

• Won’t tie up home equity
• Won’t place a new lien on your house
• Fast closing times
• Low closing costs

Cons:

• Even the best rates are higher than most mortgage rates
• Need excellent credit to get the best rates

Should you finance a pool?

Most Americans have $5,000 or less in savings, according to a study conducted by the Federal Reserve.

That’s not enough to cover an in-ground swimming pool. Financing may be the only way for most Americans to add a pool to their homes.

But is it smart to go into debt for a pool, even if you can get the lowest interest rate?

Like a lot of personal finance questions, this one depends on your unique preferences and needs.

A pool can enhance the value of your home — by about 7% on average, according to the National Association of Realtors. A big home improvement project like updating an old kitchen or adding an extra bathroom could have a bigger impact.

Ultimately, the question is this: Will the new pool add enough to your quality of life to justify the ongoing debt? The financing staff at the pool company will say yes. But only you can answer that question for you.

Additional pool costs to consider

The pool, the installation, the landscaping — you’ll pay these costs one time. Other pool costs must be paid regularly.

Maintenance costs reach at least $500 a year and could reach as high as $4,000 a year, according to HomeAdvisor. Costs include chemicals, filters, and utility bills for heating, lights, and pumps.

Simpler pools — unheated pools, saltwater pools, smaller pools, for example — need less maintenance.

Be sure to consider ongoing maintenance costs in your financial plans. A poorly maintained or closed pool could hurt the value of your home.

Keep in mind your homeowner’s insurance premiums will also increase when you have a pool.

Best way to finance a pool FAQs

What type of loan is best for a pool?

The best pool loans charge the lowest interest rates, the lowest upfront fees, and provide enough money for the project along with a contingency if the project runs over budget. Home equity loans can check all these boxes for many borrowers. Be sure to compare the upfront and ongoing costs of any type of financing you’re considering.

What is the typical financing for a pool?

Home equity loans and lines of credit work well for homeowners who have enough home equity to cover pool costs. Homeowners without enough equity may need to consider an unsecured personal loan, also known as a pool loan.

Is it hard to get financing for a pool?

No. Borrowers have several options for swimming pool financing. Homeowners with good credit, and enough equity to back the loan, can use home equity loans or home equity lines of credit to pay for pool costs. Homeowners without enough equity could use unsecured personal loans. Borrowers with bad credit should strengthen their credit file before applying.

What is a pool loan?

A pool loan is an unsecured personal loan used to pay for a new pool and its installation. Since the loan is unsecured, the borrower does not post collateral. Posting no collateral has advantages: the lender can’t repossess the pool or your home, for example. But it also has a big disadvantage: Without collateral, the lender charges higher interest rates.

Can you add a pool to your mortgage?

Yes. A cash-out refinance can combine new pool costs with your existing home buying costs. You’d get one, new mortgage loan that’s large enough to combine your existing mortgage debt with the overall cost of a new pool.

What are today’s rates on swimming pool loans?

Home values have increased over the past few years, and a higher home value means more home equity.

If you’ve been thinking about adding a swimming pool to your property, your home equity can make borrowing money for the project more affordable.

How do you get started? WIth a mortgage preapproval. It can show your borrowing power. It’ll also estimate your interest rate and other borrowing costs.

Check your pool financing options here (Sep 16th, 2024)

The post The Best Ways to Finance a Pool first appeared on My Mortgage Insider.

But is paying off your auto loan with a cash-out mortgage a smart money move? As with most personal finance matters, the answer is: it depends.

Check today's rates here and apply for a conventional refinance (Sep 16th, 2024)

What to consider

If the decision were based solely on comparing the average interest rates for car loans with those of new mortgages, the answer (for most people) would be no.

But there’s more to good money management than interest rate comparisons.

Factors that should be considered include current and future cash-flow needs, the amortization schedules and tax deductibility of your loans, asset depreciation and your credit score.

In some cases, it might be wise to consolidate your consumer debt (including auto loans) with a cash-out refinance, even if you’re unable to lower the interest rate.

Click here for today's refinance rates (Sep 16th, 2024)

Auto loan Rates vs mortgage rates

A cash-out refinance involves taking out a new mortgage for more than your outstanding balance. You then pocket the difference between the new and old loans.

If you recently took out an auto loan, it’s likely that the interest rate is identical, or even slightly lower, than the rate for a cash-out mortgage.

In 2016, the average rate for new vehicles was in the low four percent range, and for used cars, the high four percent range.

At the moment, the average rate for a conventional 15-year fixed mortgage is just about four percent, and it’s around 4.5 percent for a 30-year fixed mortgage.

Even if auto loan rates climb to 4.5 percent (new cars) and 5.2 percent (used) this year, which some experts are predicting, it’s unlikely you’ll save money by paying off a car loan with a cash-out refi, especially when you factor in the closing costs associated with new mortgages.

For cash-out mortgages, closing costs typically range from three to six percent of the loan.

Keep in mind, too, that while most houses rise in value, the value of automobiles always depreciates – usually quite fast.

So if you obtain a new 15- or 30-year mortgage to eliminate the car loan, you’re financing a depreciating asset by taking out equity from an appreciating asset.

Click here for today's mortgage rates (Sep 16th, 2024)

When paying off a car loan with a cash-out refi makes sense

If your car loan is relatively new, chances are that most of the monthly payments made in the first year or two are going to go toward interest, and not toward the principal.

In that case, getting a cash-out refi to pay off the loan could save you hundreds of dollars in interest charges, assuming there’s no prepayment penalty.

Another argument in favor of getting a cash-out refinance is that, unlike car loans (and almost every other form of consumer debt), mortgages are tax deductible.

By reducing your taxable income and landing a bigger tax refund, you could potentially save thousands of dollars a year.

To determine whether you’ll come out ahead by using a cash-out mortgage to eliminate your auto loan(s), contact your current lender to obtain an amortization schedule, or go online and look for an amortization calculator.

With this tool, you can figure any financial benefits you’ll receive by eliminating the auto loan with a cash-out refinance.

If math and money management isn’t one of your personal strengths, consult with a financial planner or an accountant instead.

Paying off credit cards is a “no-brainer”

Deciding what to do about an auto loan can involve numerous calculations and some close judgment calls, but that’s rarely the case when it comes to using cash-out refinances to consolidate other types of consumer debt, especially credit card debt.

Swapping credit card debt for a new mortgage is often a “no-brainer.”

The average credit card today carries an interest rate ranging from 10-20%, plus cash-advance fees and “penalty rates” for late-payers or people with lower credit. By consolidating this debt with cash from a new mortgage, you can reduce your interest rate to just four or five percent.

In addition, you’ll enjoy more cash-flow flexibility. With consumer debt, there could be frequent changes to interest rates, minimum payments, and terms, making it difficult to know exactly how much you’ll owe from month to month.

By contrast, a fixed-rate mortgage bundles everything into a predictable monthly payment.

Paying off credit cards with a cash-out refinance can also improve your credit score by reducing your credit utilization ratio (the amount of available credit you’re using).

The danger with debt consolidation, of course, is when someone refinances their mortgage to eliminate consumer debts, and then turns around and racks up new debts.

If you do this, and then you need or want to buy a new home, you could end up with no equity in your existing house, or possibly something worse.

If deficit financing has become a way of life, debt consolidation with a cash-out mortgage is not the solution.

Before you apply for a cash-out mortgage, make sure you’ll receive at least one of the following three benefits: a shorter loan term, lower monthly payments, and lower costs over the term of the loan.

Click here for today's mortgage rates (Sep 16th, 2024)

The post Should You Pay Off a Car Loan With a Cash-Out Mortgage? first appeared on My Mortgage Insider.

Here are some basic questions you should answer before determining if a cash-out refinance is the right move for you.

Check your eligibility for a cash-out refinance loan today (Sep 16th, 2024)

1. How long do you plan on staying in the home?

As with all refinances, it only pays to move forward if you have ample time to recoup the closing costs and fees that you’ll incur. This can take a few years. For example, if your monthly savings from refinancing is $100 per month and your closing costs are $4,000, then it’ll take a little over three years for those savings to pay off the costs. If you’re planning on selling your home before those three years, then you’re actually losing money.

Also worth noting is that you’ll have less equity in the home, since you’re taking out cash against the home’s value. This can make it harder to sell in the short term. But, if you plan to stay in your residence for the long term, then you’ll regain more equity over time.

2. What do you plan to do with the funds from the cash-out refinance?

It may seem like free money to take your dream vacation or splurge on your wedding. But there is no such thing as free when it comes to money that you’re borrowing against your home. In other words, that amount is rolled into your new mortgage principal. You’ll be paying interest on it for the next 30 years — or, however long your new loan term is. Is that new sports car worth it?

It’s a better idea to use the money toward something meaningful like paying for needed health care costs for a family member, or a sound investment like a major home improvement that will add value to your home. Some even use it to consolidate high-interest debt like credit cards.

If you need cash, but don’t want to touch the earned equity in your home, then a personal loan may be a better choice. Typically, personal loans have lower interest rates than credit cards and are quick and inexpensive to process — usually much quicker and less expensive than a cash-out refinance, which requires an appraisal and documentation similar to a home purchase loan.

There are no restrictions on how you can use the money both with a cash-out refinance or a personal loan — just make sure that it helps you reach your financial goals in some way.

3. How will your monthly payments be affected?

In general, it’s a good idea to refinance if it can save you money — either on your monthly mortgage payments or in interest payments over the life of the loan. But, unlike a streamline refinance, which requires a lower payment, with a cash-out refinance you may end up with payments that aren’t all that different. This is due to factors like your loan-to-value ratio, the interest rate you can qualify for, and how much cash you’re taking out. And, if you’ve refinanced in recent years, the drop in interest rate may not be dramatic enough to make much of a difference.

Get advice from a mortgage professional and see if a reduction in your monthly payment is possible — it could be the deciding factor for you.

4. Are you ready for a cash-out refinance now?

While you shouldn’t rush a major financial decision like a mortgage refinance, you should keep in mind that interest rates are at current all-time lows. According to Ellie Mae’s March 2021 Origination Report, the average 30-year loan interest rate was 3.02% in March. Currently, rates are hovering at some of the lowest levels in years.

Even if you purchased your home in the last couple of years, you could still benefit from a refinance — there are 8.2 million homeowners who could benefit from a refinance in the market. No one knows when interest rates will head back up, so the longer you wait, the less beneficial a cash-out refinance may be for you.

5. Is a home equity loan a better idea?

If your goal is to get access to cash especially for home improvements, you may be better off getting a home equity loan or home equity line of credit. These are independent, second loans on top of your current mortgage, but with much lower closing costs than a refinance.

To decide, you should consider how many years you have left on your current mortgage. If you’re more than halfway through paying it off, it’s probably not a good idea to start over again, since most of your monthly payment is being applied toward the principal balance — a reduction in interest rate wouldn’t help you much. A home equity loan in this case may be a better option.

Apply for a cash-out refinance while rates are low

Cash-out refinance mortgages can be a great opportunity to lower your monthly payments, gain access to cash, and positively impact your overall financial well-being for homeowners in the right situation. If you want to know how a cash-out refinance could benefit you, then reach out and speak to a mortgage professional.

Check your eligibility for a cash-out refinance loan today (Sep 16th, 2024)

The post 5 Things to Consider Before Your Cash-out Refinance Application first appeared on My Mortgage Insider.

With the cash-out refinance option, borrowers can receive cold hard cash derived from the value of their home – up to 80 percent for the loan-to-value ratio (85 percent with an FHA loan), says JD Crowe, president of the Association of Mortgage Bankers of Georgia. He also helps people get loans every day as president of Southeast Mortgage of Georgia in Lawrenceville.

Check today's rates here and apply for a conventional refinance (Sep 16th, 2024)

Who qualifies for a cash-out loan?

You are refinancing your current mortgage and getting an entirely new loan – hopefully with a smaller interest rate – and then receiving cash back in your pocket, he says.

“What we typically see with cash-out situations is someone that has a larger equity position,” Crowe says. “You don’t usually see people who just want to take out $10,000 in cash go through all this trouble.”

Crowe paints a scenario of the maximum amount someone might take out in a cash-out refinancing — A house is worth $200,000, and the person still has $100,000 to pay off on the mortgage.  The new cash-out refinancing loan can go up to $160,000 with $100,000 going toward paying the original mortgage off and $60,000 going to the homeowners to do with what they want.

But he warns anyone thinking of refinancing in this way.

“It can be very risky. If there is a better place to get cash, you should exhaust those places first. But every situation is different,” he says. “Anytime someone is tapping into the equity in their home to change their lifestyle, they should have a conversation first with a lending professional that they trust. Then, they should get a second opinion from a financial planner or CPA and a lender.”

You have to really weigh your options and the reasons why you want to refinance.

“If your only reason is to take out $5,000, that’s probably not a good idea especially if you are adding more years to your mortgage or having to pay closing costs on the loan,” he says.

The cash-out refinance option has been around for a long time, he says, even during the mortgage crisis in 2008.

“But there was no home equity in many areas because the values of homes went down considerably,” he says. “Now, there is equity to tap into to cash out.”

According to the latest quarterly report by the National Association of Realtors in February, home prices in metro areas throughout the United States continued to grow—up 25 percent over the past three years on average. Single-family home prices in the fourth quarter of 2014 were $208,700, up 6 percent from the year before.

Check today's rates here and apply for a conventional refinance (Sep 16th, 2024)

Common reasons homeowners use a cash-out refinance

When someone decides on a cash-out refinancing, they need or want the money for a variety of reasons.

“One of the typical reasons is making an investment of some sort such as buying another property or getting a second residence. A cash-out refinance is usually the cheapest way to get money for another home,” he says.

Other reasons can be to pay off higher interest rate debt such as credit cards or car loans, college tuition, home improvements, medical bills, vacations or anything else they see the cash helping their lives out.

Crowe gives an example of someone who is nearing retirement age that a cash-out refinancing might work. They have refinanced recently to a 15-year loan. But they need to improve their cash flow. So, they refinance to a 30-year term loan and get some cash out for other bills.

“In a perfect world, people are supposed to have their homes paid off before retirement. But that’s not the reality anymore,” he says.

Somebody else might use the cash-out refinancing because they have found an amazing investment opportunity that could make them big profits in the future. They look to their home’s equity to get the money they need to fund that investment.

But Crowe emphasizes that there are fees associated with refinancing, and it takes time and effort to go through the process. You need to think about the fact that once you take cash out of your home’s equity, you lose all that equity you’ve built up. You also are taking on more debt that you need to pay off to rebuild the equity once again. So, do you really want to take out $10,000 to go on an exotic trip to Bali, and then pay for it the next 15 years of your loan?

One of the advantages of cash-out refinancing is that some fees and interest might be tax deductible. Talk with your CPA to see how that can help you with your tax bills.

Apply for a cash-out refinance

Low mortgage rates and rising home equity is spurring more homeowners to take some of that equity as cash. For those who are equity-rich and in need of cash, this is a very viable option.

Check today's rates here and apply for a conventional refinance (Sep 16th, 2024)

The post Cash Out Refinance Option Popular as Home Equity Rises first appeared on My Mortgage Insider.

In the episode, we talk about how to cash out U.S. real estate to buy property overseas. But no matter what you need the cash for, this podcast will let you know what you can and can’t do when it comes to turning your home’s equity into cold, hard cash.

Cash from a cash out refinance can be used for any purpose. As long as you have enough equity and qualify for the loan, the lender will approve the loan and give you cash, no matter what you plan to use it for. The lender simply could care less what the money is for.

In this podcast, we talk about ways to cash out your home using

• FHA cash out loans
• VA cash out refinance up to 100% of your home’s current value
• Conventional loan cash out refinances
• Reverse mortgages
• Home equity loans and home equity lines of credit (HELOCs)

Listen on Youtube here:

Also, catch the podcast on:

• iTunes
• Stitcher
• International Real Estate Listings.com

Check your FHA eligibility. Start here (Sep 16th, 2024)

The post Cash Out Refinance Tips and Tricks | Podcast first appeared on My Mortgage Insider.