Refinancing your mortgage can be a great way to replace your existing mortgage with a new loan at a better interest rate. But did you know that you can also refinance your home to obtain cash? Here we walk you through what a cash-out refinance is and how it can be a benefit to you.
How it works?
A cash-out refinance is when you refinance your mortgage and take out more than the mortgage owed, with the difference of your mortgage balance and home value going to you in cash.
How does it differ from a home equity loan?
A cash-out refinance is very different than a home equity loan. With a home equity loan, you’re obtaining a completely different loan than your mortgage. This type of loan goes on top of your first mortgage and is paid back separately. The cash-out refinance is instead, a replacement of your initial mortgage with a new loan, which often includes closing costs.
When is it wise to use a cash-out refinance?
This is an excellent option when you have enough equity built up in your house, and interest rates have lowered below your original mortgage rates. It’s also a better option than taking out a loan, as with mortgage refinancing you typically receive lower interest rates than a home equity loan or a home equity line of credit. Also, it’s important that you review the closing costs before making a final decision. A high closing cost could in turn, negatively offset the amount you receive from refinancing.
What are the benefits?
Cash-out refinancing is the perfect option for when you want to have extra cash to start a new project, like a renovation project in your home, but don’t want to take out a separate loan. It can also be used to help you pay off otherwise high interest credit card debt, saving you thousands of dollars in interest and improving your credit score. Plus, mortgage interest payments are also tax deductible, so a cash-out refinance could actually get you a tax refund.
A cash-out refinance can be a great way to use money to fund a new home project or to obtain a better financial situation by paying off high interest debt. Talk to a mortgage broker; they can help you assess your mortgage situation against the current market to find you the best option possible.
Any questions about cash-out refis and other financing options? Call us at (905) 265-0246 or email mortgages@thefinancialforum.ca!
