Did you know that Cash-Out Refinances (CO) on your mortgage can be used for nearly anything you can think of? If you’ve never heard of refinances, take a look at my other blog to learn some of the basics. There are a variety of reasons as to why would someone refinance their home, and there are a variety of programs to meet these various needs.
FHA, VA, and conventional mortgages all allow for CO Refinances. Using those programs, you could pay off old debts, repair your home, buy someone out of a mortgage, and so much more. You could even use a CO Refinance to purchase an entirely new property! The possibilities are limitless once you realize you’re sitting on a potential goldmine.
Depending on your circumstances, you might need to look into specific loan programs for your CO Refinance. Thankfully, NewCastle Home Loans has access to a wide variety of programs to fit your every need. Depending on the program for which you qualify, you could refinance up to 90% of your current home value, but most programs prefer you have at least 80% Loan-to-Value (LTV). Having more than 20% equity/value in your home will allow you to avoid any Private Mortgage Insurance (PMI) or Mortgage Insurance Premium (MIP) payments and will leave you with more financial security.
Regardless of which program you’re considering, it’s important to have an idea of how much your home is worth currently and how much you’re going to need for your given project. Once you’ve arrived at the numbers necessary for your project, take a look at our mortgage calculator on our homepage to see what kinds of programs would be possible for your scenario and reach out to me at firstname.lastname@example.org with any questions.
Part of finding out how much you’re going to need involves choosing a project to begin with. So, what can you use your CO Refinance money on? Well, there’s really no limitation here since the loan is based on your home. As long as you’re providing us with honest answers for what you’re using your home for, you’re free to use the money for anything you want!
Use the cash to pay off debt.
By far, the most common reason I see people use CO Refinances is to pay off other debts. Popular items are medical debts, student loans, credit cards, and auto loans. Considering where interest rates are today, moving these debts into one loan secured by your home will typically save you thousands on interest, and it will become tax deductible as you’re able to deduct interest paid towards your residence.
Fun fact: Did you know approximately 30% of your credit score is based on your available capacity for revolving (credit card) accounts? If you were to pay all of these off with your mortgage, which is an installment loan, your credit scores would go up! You still owe the same amount of debt, but because you’ve increased the available capacity you have, your scores will have increased, you’ll be paying less overall each month, and you’ll be saving on interest.
Free up funds to repair and upgrade your home.
You may want to fix something in your home that’s been bothering you or has become a problem such as a roof or foundation issue but you weren’t confident you had enough cash to cover the repairs. A CO Refinance would be a perfect solution! Not only would you be taking care of something essential to your quality of life, but you’d also be increasing the value of your home as well. This isn’t limited to major items. You could also consider renovating your kitchen, upgrading your bathroom, or replacing carpets with hardwood floors. I know my wife would love it if we renovated our bathroom to include a new soaker tub - can’t say I’d complain either.
Using your CO Refinance for an investment property.
One of the more inventive uses for a CO Refinance is to use the proceeds to purchase an investment property. This investment could be something you plan to fix-and-flip (purchase, renovate, and sell within a short window - typically within one year). The investment property could also be something you purchase and turn into a rental unit for supplemental income - or just a property that you plan to let your family live in for free. However you decide to use the liquid cash you’ve just created, make sure you consider any potential return on your investment before you dive into a new property.
One of my clients recently took cash out of their free and clear (no mortgage on the property) home to purchase a property down the street from where they live and renovate it so they may rent out the units and build even more equity over the years. They timed this project in such a way that they were able to close on their refinance, purchase the new property, fix it, and start receiving rent within a month of their first mortgage payment being due.
Remember - the sky's the limit.
Realizing there’s really no limit to what you can use your CO Refinance for is important. You can consider your home as a type of high-yield savings that allows you to constantly be investing in yourself, your future, and allow you the possibility to use those years of savings to re-invest in the life you’d like to lead. Depending on your position, some people will take cash out of their home for multiple purposes. Maybe they’ll consolidate some debt, do some repairs, help out their family, and go on vacation. Investing in ourselves and taking vacations is an important investment. We can’t stay productive if we aren’t taking time to recharge our batteries.
Having the option to refinance your home opens many doors. Not all doors need to be explored, but when we have more options, we have greater ability to move forward in our endeavors. Whether you need to consolidate debt, get some work done on the house, or invest in your future income, remember NewCastle Home Loans is here to make sure you have a smooth refinance so you can get started on the next stage. The possibilities are endless, and I look forward to helping you achieve your goals. Email or call me at 847-471-7399 with any questions and be sure to see our mortgage calculator to take a quick look at some of your numbers!