PUT CASH IN YOUR HAND WITH A
FROM SOUTHSTAR BANK
Let the experts at SouthStar Bank help you take control of your financial future with a cash-out refinance.
Are you looking to refinance your mortgage and create a quick influx of cash?
If you’ve been asking yourself whether a cash-out refi or a home equity loan is a better option for you, read on to inform your decision-making process.
How Could a Cash-Out Refinance Help You?
Receive cash for major expenses.
Consolidate your debt.
Reinvest the cash you get back into your home.
Shorten your loan term and/or get a lower rate.
How Much Can I Cash-Out Refinance?
The other key component that determines how much money you’re eligible to borrow is the loan to value ratio (LTV) on your home. The LTV is essentially a refinance calculator. The maximum LTV for a cash-out refinance loan is 80%. For example, if your property has an appraised value of $400,000 and you currently have a loan balance of $200,000 (50% LTV), you are eligible for 80% of the $400,000 appraised value, or up to $320,000. This means that you can take $120,000 ($320,000 – $200,000) home from the cash-out refinance.
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Frequently Asked Questions from Clients
You do not. It’s a loan, not a source of income, which means that the IRS won’t be able to touch the money. You won’t even have to report the money on your tax returns. You may or may not be able to deduct the interest, depending on how you use the money.
If you use the money for things that aren’t related to your home, such as paying off credit cards and medical bills, then you will not be able to deduct the interest. If you use it to remodel your home or for repairs, then you can still deduct the interest, just like you could on your original mortgage.
Your original mortgage will be paid off in a cash-out refinance loan, so the loan itself may have tax implications if you use it for purposes other than improving your home. In addition, the deductions might be slightly lower. Speak to your tax professional if you have concerns about the way the loan might impact your taxes over the next several years.
A simple refinance doesn’t extract any of the equity from your home. You get lower interest rates and a lower mortgage payment, and the term of your loan may be extended to give you a little more time to pay it off. Yet you won’t get a check or any additional money to conduct repairs or to make improvements.
A cash-out refinance refinances and pays off the original mortgage, but gives you access to some of your equity. This puts cash in your hand which you can then use for a variety of purposes.
A cash-out refinance essentially combines a refinance with a home equity loan to give you some financial flexibility.
Home EquityWhen you borrow money, you must consider who you’re borrowing it from. This principle comes in handy while you’re thinking about whether or not a cash-out refinance is your best option. There are many benefits to this kind of refinancing, one of which is gaining value from the money you’re borrowing. When you repay a mortgage, you gradually gain equity in your home. With credit card debt, you’re usually spending on frivolous material possessions. With a cash-out refi, you’re doubling down on your plans for the future.
Debt Consolidation and Credit ReliefA cash-out refinance is beneficial for individuals who are looking for an effective method to consolidate debt. It affords people the opportunity to use their home equity as leverage against outstanding debt and improve their credit score. Interest rates are usually higher for credit cards than mortgages. To illustrate this point, one need only compare the national average for both in 2018. The national average interest rate for credit cards was 15.32%. Compare that to the national interest rate on home mortgages, which was 4.58%, and you can see why a cash-out refinance is a suitable solution to miscellaneous debt.
Lower Your Mortgage RateIn the current real estate market, mortgage interest rates are favorably low. If you received your mortgage when rates were high, now is a great time to refinance. You may be able to lower your mortgage rate while receiving cash.
Some people are concerned about getting a cash-out refi because of how it used to work. In the past, once you borrowed with a cash out, it created a ‘cloud’ on your title. This caused a slightly higher rate. If you tried to later refi again, the cloud remained. Fortunately, this is no longer the case. A cash out refi can be later refinanced with no automatic penalty.
Current rates are favorable for most borrowers. If you have taken out a cash out refi in the past, give us a call to discuss your options for refinancing. If you were told ‘once a cash out always a cash out’ in the past, this is no longer the case.