Wondering how refinancing your home can save you money? Core Bank is committed to helping you find the best interest and monthly mortgage rates to fit your lifestyle. When you choose to go through mortgage refinancing, you essentially trade your old mortgage in for a new one with more favorable terms. The benefit of refinancing a mortgage is to take advantage of a lower interest rate which lowers your borrowing costs.
If you bought a home after rates increased, it may already make sense to refinance, especially for those who pay private mortgage insurance (PMI). With home values up and mortgage rates down, many homeowners can refinance to a lower-rate mortgage that doesn’t require PMI. Conversely, those who already have exceptionally low rates, such as below 4%, are unlikely to find refinancing advantageous in the foreseeable future.
When you have a large amount of higher-interest debt or are needing cash for home repairs or medical bills, a cash-out refinance could also make sense now or as rates drop. A cash-out refinance is a mortgage refinance that lets you take cash out of your home. Credit cards have rates above 20% right now so depending on your balance, a refinance may save you money over time.
How A Cash-Out Refinance Works:
Take out a new mortgage loan in a larger amount than your existing mortgage then use the new loan to pay off your old one, essentially replacing it. After closing, you get the difference between those numbers (your old mortgage balance and your new one) in cash.
Most mortgage lenders let you take out up to 80% of your home’s value. For example, if your home is worth $500,000, you could potentially take out up to $400,000. Remember part of that has to go toward paying off your old balance. So, to calculate the maximum amount of cash you can take out, you’ll need to subtract your existing mortgage balance first. If you had a current balance of $225,000, for example, you’d be able to get up to $175,000 in that above scenario ($400,000 – $225,000).
Pros of cash-out refinancing
- Potentially large loan amounts
- Long payoff terms
- Can use the funds for any purpose
- Lower interest rates than other financial products
- Interest is tax-deductible
Cons of cash-out refinancing
- Requires closing costs
- Replaces current mortgage terms, which could mean a higher rate or longer payoff timeline
- It may mean a higher payment
- Increases your risk of foreclosure
When to use a cash-out refinance
The right time to use a cash-out refinance depends on your personal situation, current mortgage and goals for the extra money.
A cash-out refinance might be smart if:
- You have the funds to comfortably cover a higher monthly payment.
- You need to pay off high-interest debts like credit cards.
- You’re facing expenses you’d otherwise need to put on a credit card or other high-interest product.
- You need to repair your home or make improvements.
A cash-out refinance might not be smart if:
- You’re tight on funds.
- Refinancing your loan would mean losing a super-low interest rate.
- Home values are falling in your area, as this could leave you upside down on your mortgage (owing more than it’s worth).
HELOC vs. cash-out refinance
Cash-out refinancing isn’t your only option if you want to leverage your home’s equity. You can also use a home equity loan or home equity line of credit (HELOC).
These are both types of second mortgages that you pay in addition to your existing mortgage payment. With a home equity loan, you get a lump sum payment. HELOCs work more like credit cards. You can withdraw from them as needed over an extended period of time. Read more about HELOCs at Core Bank.
For Today’s Homebuyers
If you are looking to purchase a home now, don’t wait to buy your dream home – you can purchase your home today and refinance the loan with no lender fees.* Your home is an important investment, so take the time to make sure it’s right. Trust in your advocates and they will ensure that you have an exciting and fun experience buying your first home.
If you are purchasing a home, submit your application for pre-approval now so you can be ready for the spring season of house hunting. Core Bank’s team of lenders are committed to helping you achieve your dreams, whether you’re ready to buy, build or refinance your home. Contact someone from our team and apply today!
* Assumptions: Conditions and restrictions apply. Lender fees (ie. Administration, applications, closing commitment, processing, underwriting and wire fees) will be waived when borrower closes on a refinance of a qualifying loan with Core Bank Mortgage. All other 3rd party fees apply. Refinanced loan must meet agency and investor guidelines (seasoning requirements, net tangible benefit). Limited to the initial refinance of the qualifying loan. Subject to credit approval.