Thinking about trying cash out refinance to help with home improvement, college tuition, debt consolidation or another endeavor, but not quite sure how it works? In a nutshell, cash out refinance is a refinancing option that will replace a homeowner’s old mortgage with a new one for a larger amount than what was owed on the previously existing loan. This way the borrowers have access to cash and are able to take advantage of the equity they have built up in their home.
The Home Loan Arranger, one of the best mortgage refinance companies in Denver Colorado, can help you to decide whether you are one of the homeowners for whom a cash out refinance is a wise option. Whatever you plan to use this refinancing for, the more information you have, the less stressed out you’ll be.
When traditionally refinancing a mortgage, homeowners replace their existing loan with a new one for the same amount, but at a lower interest rate or a shorter loan term – or sometimes both. One advantage to a cash out refinance can be obtaining a lower interest rate.
To go this route, you must have sufficient equity to borrow against, cash to cover closing costs of the transaction, and means to repay the new mortgage. Cash out refinancing does not mean borrowers can withdraw all of their home equity. Instead, lenders will limit you to withdrawing a set percentage of equity in cash. On average, this is capped at 80 percent of a homeowner’s total loan-to-value (LTV) ratio. As one of the best refinance companies in Denver Colorado, we will help you to see how much equity you have at your fingertips and how much of that you are permitted to borrow against.
While 80 percent is typical, that margin can vary depending on a person’s credit score and mortgage type. Loans insured by the Federal Housing Administration (FHA) will sometimes offer a cash out refinance option that allows someone to borrow as much as 85 percent of the home value. Additionally, United States Department of Veterans Affairs (VA) backed cash out refinance loans are available for up to 100 percent of the home value.
As always, borrowers will want to keep closing costs in mind when refinancing a loan, as they can add up to thousands of dollars. Closing costs can include lender origination fees and an appraisal fee to assess the current home value. We can help you to understand how your new loan amount relates to the value of your home, as well as the costs and benefits of the transaction.
Cash out refinancing can be beneficial for homeowners whose property has increased in overall market value since they first purchased the home. Motivated borrowers can max out the potential for favorable financial outcomes by using the cash to make value-enhancing home improvements or repairs to their home. If the home projects substantially increase the property value, the homeowners may deduct the mortgage interest from their taxes. Eligible projects may include adding a new bedroom or bathroom, installing a swimming pool or hot tub, constructing a fence, improving a roof, or even replacing windows with storm windows. Depending on the individual or situation, a cash out refinance could end up being less expensive than using a personal loan or credit card for major home improvements.
Parents or grandparents may find a cash out refinance to be the best way to go if they would like to use the cash toward paying for a child’s college tuition. If student loan rates are higher than the rate of a new mortgage, then cash out refinancing can be a wise option. Our experienced professionals at The Home Loan Arranger, one of the best mortgage refinance companies in Denver Colorado, will help you to decide if this would be favorable for everyone involved in your family’s situation.
Sometimes cash out refinancing makes sense to help borrowers consolidate and pay off high-interest debt. Again, the math needs to all line up for this to work. We will work with you to ensure that the interest rate on your primary mortgage will be reduced and the cash that you take out will be optimally utilized.
You deserve a mortgage broker who will take the time to look at your situation from every angle. With more than 20 years of experience in the mortgage industry, the Home Loan Arranger will ensure that you get the best cash refinance deal. Choosing an inexperienced mortgage lender will place you at an unnecessary risk of suffering from serious financial consequences that could continue for decades to come.
Contact The Home Loan Arranger, one of the best refinance companies in Denver Colorado, today and rest assured that we will always be looking out for your best interest.