A cash-out refinance allows a Denver homeowner to replace an existing mortgage with a larger home loan and receive part of the difference in cash. The amount available generally depends on the property’s value, existing mortgage balance, available equity and the lender’s qualification requirements.
For example, suppose a Denver home is worth $600,000 and the owner owes $350,000. The homeowner may be able to refinance for more than the existing $350,000 balance and receive a portion of the additional loan proceeds after closing costs and other obligations are paid.
What Can Cash-Out Refinance Funds Cover?
Homeowners commonly use cash-out refinance funds for significant expenses, including:
- Home repairs and renovations
- High-interest debt consolidation
- Education expenses
- Medical bills
- Major household purchases
- Financial reserves
A cash-out refinance does not provide free money. The amount withdrawn becomes part of the new mortgage balance, is secured by the home and must be repaid with interest.
The Consumer Financial Protection Bureau reports that borrowers frequently use cash-out refinancing to reduce other debts or pay for home improvements. However, replacing unsecured debt with mortgage debt places the home at risk if the borrower cannot make the new payments. CFPB cash-out refinance research
How Much Equity Do You Need?
Lenders typically require homeowners to retain a certain amount of equity after refinancing. The precise requirement depends on the loan program, property type, occupancy, credit profile and other underwriting factors.
A lender may require an appraisal to establish the property’s current market value. Denver homeowners should not assume that an online estimate will be the value used during underwriting.
What Costs Should You Consider?
Cash-out refinance loans can include:
- Loan origination charges
- Appraisal expenses
- Title and settlement fees
- Credit-report charges
- Discount points
- Recording charges
- Prepaid taxes and insurance
Some lenders advertise no-closing-cost refinancing. These offers generally do not eliminate the expenses. Instead, the borrower may receive a higher interest rate or have certain costs incorporated into the new loan.
Cash-Out Refinance Versus a Home Equity Loan
A cash-out refinance replaces the original mortgage. A home equity loan or home equity line of credit normally leaves the original first mortgage in place and creates an additional obligation.
Keeping an existing mortgage may be advantageous if it has a significantly lower rate than currently available refinance loans. The right option depends on the desired amount, current mortgage terms and total borrowing cost.
Is a Cash-Out Refinance Right for You?
Compare the new interest rate, APR, monthly payment, loan term and lifetime interest expense against your existing mortgage. Extending a nearly paid-off loan into a new 30-year mortgage could reduce the monthly payment while increasing the total amount paid.
A cash-out refinance can provide access to Denver home equity, but the benefits should outweigh the closing costs and additional debt.
Call Jason Today at (303) 862-4742!