Depending on your financial goals, a cash-out refinance might be the best option for you
Like many life choices, refinancing your home comes with options. With this type of refinancing, you can refinance your mortgage and borrow cash at the same time.
What is a cash-out refinance?
A cash-out refinance replaces your existing home loan balance with a new loan that is greater than your existing balance. You withdraw the difference between the two loans in cash and can use it towards whatever you like. Most people use that money towards debt consolidation or home improvements.
With a cash-out refinance, you could take out a portion of this equity. For example, if you wanted to take out $50,000 in cash, your new mortgage principal amount would be the current balance of $200,000 plus $50,000 totaling $250,000. ALLIANCE allows you to take up to 80% of your equity, but this can vary depending on your credit score and mortgage type.
Advantages to cash-out refinancing
Debt consolidation: The money you receive can help you pay off high-interest credit cards, which could end up saving you thousands of dollars in interest.
Lower interest rates: If you bought your home when mortgage rates were high, chances are you might be able to secure a lower rate with a cash-out refinance.
Higher credit score: Using a cash-out refinance to pay off your credit cards can help increase your credit score. When you pay down your cards, you decrease your revolving utilization. A lower utilization rate helps increase your credit score and deems you less of a risk to creditors.
Tax deductions: If the money from the cash-out refinance is used to buy, build or substantially improve your home, a mortgage interest deduction might be available.
Disadvantages to cash-out refinancing
A cash-out refinance isn’t always the best option depending on your circumstances. Here are some reasons you might want to avoid the cash-out option:
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