{"id":356191,"date":"2021-02-24T07:00:43","date_gmt":"2021-02-24T14:00:43","guid":{"rendered":"https:\/\/www.creditrepair.com\/blog\/?p=356191"},"modified":"2021-02-24T12:10:30","modified_gmt":"2021-02-24T19:10:30","slug":"when-is-a-cash-out-refinance-loan-a-good-idea","status":"publish","type":"post","link":"https:\/\/www.creditrepair.com\/blog\/lending\/when-is-a-cash-out-refinance-loan-a-good-idea\/","title":{"rendered":"Is a cash-out refinance a good idea?"},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n

Disclosure regarding our editorial content standards.<\/a><\/p>\n\n\n\n

As a homeowner, you\u2019ve probably heard a lot about refinancing. An individual will often refinance their mortgage to take advantage of lower interest rates or pull out equity from their home. However, a less common but still viable option is the cash-out refinance. Keep reading to find out if a cash-out refinance is a good idea and if it\u2019s right for you. <\/p>\n\n\n\n

What is a cash-out refinance loan?<\/h2>\n\n\n\n

A cash-out refinance is a very different form of refinancing. You\u2019re still going through the process of switching out your current mortgage for a new one, but you\u2019re actually taking out a mortgage for more than your current outstanding balance. You subtract the cost of your leftover mortgage and get to keep the difference as cash. <\/p>\n\n\n\n

To explain this more clearly, we\u2019ll walk you through an example. Let\u2019s say you had an outstanding mortgage balance of $100,000 on a home that\u2019s worth $350,000. If you took a cash-out refinance loan, you\u2019d refinance the $100,000 balance, plus you could take out an additional amount to keep as cash. <\/p>\n\n\n\n

So if, say, you had plans to renovate and needed $30,000, you could refinance a new mortgage of $130,000\u2014$100,000 for the mortgage and $30,000 for your renos.\u00a0<\/p>\n\n\n\n

It\u2019s important to note that you won\u2019t just be able to take out however much you want. You\u2019ll need to prove you can afford the new monthly payments\u2014in this case, a monthly payment for a $130,000 mortgage. Most lenders will let you take out up to 80 to 90 percent of your home\u2019s value. <\/p>\n\n\n\n

Usually, a cash-out refinance takes between 30 and 45 days to finalize, so make sure to factor that in when you\u2019re considering your options. <\/p>\n\n\n\n

Who is eligible for a cash-out refinance?<\/h2>\n\n\n\n

Just like with your initial mortgage, you\u2019ll have to qualify and be approved for a cash-out refinance loan. Typically, lenders want to see:<\/p>\n\n\n\n

Additionally, a cash-out refinance loan is typically only an option if you have at least 20 percent equity in your home. <\/p>\n\n\n\n

When is it a good idea to do a cash-out refinance?<\/h2>\n\n\n\n

There are several reasons why a cash-out refinance may be a smart choice. <\/p>\n\n\n\n

If you want a lower interest rate (and cash)<\/h3>\n\n\n\n

You\u2019re likely looking into refinancing because you believe you can secure a lower interest rate on your mortgage<\/a>. A lower interest rate on your mortgage can save you thousands of dollars over the life of the loan. However, if you don\u2019t need the cash, you might as well just do a regular refinance. A normal refinance<\/a> can be easier to qualify for.\u00a0<\/p>\n\n\n\n

If you want to help pay for college tuition<\/h3>\n\n\n\n

One of the most popular reasons people select a cash-out refinance loan is to help pay for higher education for themselves or their loved ones. If you don\u2019t qualify for a federal student loan and don\u2019t want to go the route of private student loans with enormous interest rates, this option may be the most affordable. <\/p>\n\n\n\n

If you want to pay off credit cards<\/h3>\n\n\n\n

Some people use the cash from a cash-out refinance to deal with debt. This includes:\u00a0<\/p>\n\n\n\n