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PUT CASH IN YOUR HAND WITH A
CASH-OUT REFINANCE
FROM SOUTHSTAR BANK
Let the experts at SouthStar Bank help you take control of your financial future with a cash-out refinance.
“Everyone I spoke with at SouthStar was very helpful and willing to assist me! I had talked to a couple other banks and not received a good response, so calling SouthStar was such a relief. They were super responsive in getting me an account set up and helping me with a loan. Would definitely recommend using SouthStar!” ~ Kristi H.
Are you looking to refinance your mortgage and create a quick influx of cash?
Cash-out refinancing is a refinancing option that allows the borrower to receive money by taking out a larger mortgage on their property than their current mortgage. The monetary difference between the two mortgages is converted into cash and made available to the borrower.
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.
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?
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Receive cash for major expenses.
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Consolidate your debt.
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Reinvest the cash you get back into your home.
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Shorten your loan term and/or get a lower rate.
How Much Can I Cash-Out Refinance?
How much you can refinance depends on a few things. One of the biggest components to determining the amount of a cash-out refinance is how much of your home you currently own. To qualify for a cash-out refinance, you need at least 30% home equity. However, the more stake you have invested in your home, the more cash you’re entitled to.
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.
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.
Note* The loan to value ratio is based on the current market conditions of your home and surrounding area.
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Our caring professionals excel at finding solutions. It’s all part of honoring our 100-year Texas heritage. If you want to work with lenders who focus on community values and personal relationships, you’ve come to the right place. At SouthStar Bank we strive to make refinancing your home or taking out a home equity loan easy and pleasant! Just contact us today to get started.
Frequently Asked Questions from Clients
Your cash out refinance loan will have a closing date, similar to the one you had when you first purchased your home. We will set the date when your application is approved, allowing you to plan accordingly. Most of our loans are complete in 45 to 60 days.
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 Equity
When 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 Relief
A 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 Rate
In 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.
Replacing Debt with Debt
As with any other financial decision, a cash-out refinance should not be taken lightly. This kind of refinancing is secured debt. This means that you’re placing your own assets on the line (equity in your home). With unsecured debt, the bank can’t foreclose your house. If you default on a cash-out refinance, they can. That’s not to say that you should abandon the idea of a cash-out refinance. Refinanced mortgage rates are lower than credit card APR rates and less damaging than medical bills sent to collections. However, it’s important to make sure that your income is secure and you don’t incur any additional miscellaneous debt. Taking on debt to pay off debt is always risky, but if you prepare for it efficiently, it can save you a considerable amount of money.Home Improvements and the Value of Your Home
Refinancing is a great way to improve your property value. If you’re planning on retiring and moving in the future, it can give you the assets necessary to do so. Home improvements can also ensure that you’re getting more out of the financial investment that you put in. Since you’ll be investing in something that you already partially own, you’re mitigating some of the risk factors. The bottom line: investing in your assets and your future is never ill advised.
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