Cash Out Refinance is a popular way to refinance your current mortgage by creating a new mortgage and acquiring the difference in the two loans in cash. This helps to change the home equity into cash and you get a lump sum of money. You can invest the money that you received, start a new business, buy a new home or pay off a bigger debt. Be smart and do your research before jumping into any financial strategy. You may also seek help of a good financial advisor. Looking into the bright side, the borrower can have plenty of benefits from this process.
- Reinvest your cash
Through this process, the cash you will receive after refinancing your mortgage can be used to invest into another asset or for other purposes. A property upgrade, buying gold, addition into your kids college fund, the possibilities are endless. Just make sure that you are spending your money on worthy things to avoid ending up with a loan you would not be able to pay later on.
- Lower Monthly Payment
This mean that if you had bought your property at a higher interest rate then you can lower it by refinancing your home while the interest rates are low.
- No need to Sell your Home
The main benefit of Cash Out Refinance is that you do not part with your property that you refinance. So you can keep your home and get some cash that you can use to your advantage.
- No Tax
The process is tax free and you can easily get cash in hand without having to pay hefty taxes. This is probably the biggest advantage of cash out refinance.
- Lower your Mortgage Term
This is useful for when you want to lower your mortgage term. For example, if you do not need to pay off another debt or invest in something else then you can refinance your mortgage and reduce your payment years, say from 20 to 10 years. This way you can reduce the amount of interest you will be paying for your property.
- Better than Home Equity Loan
The cash out refinance option is better than a home equity loan as it provides you with a new mortgage which replaces your older one. However, a home equity loan is just another add on to your older loan.
You can go for cash out refinance if you have owned your property for more than one year. You must also have a sufficient monthly income and credit history to be approved for the cash out refinance option. After you have successfully cashed out some of the value of your home, make sure to invest it or use it in the right places. The cash out refinance option is also highly beneficial for those who have inherited money or saved up a large amount and now want to have a better equity and reduce their mortgage term.