House values are continuing to increase across the state of California, and homeowners are now finding themselves with more equity in their homes. Many homeowners utilize a cash-out refinance to convert some of their equity into cash.
What is a Cash-Out Refinance?
A cash-out refinance loan refers to the refinancing of an existing mortgage into a larger mortgage that not only changes the interest rate and the terms of the loan but also advances cash to the borrower from the difference in mortgage funds and the extra funds. Borrowers can use the cash-out funds for anything.
There are loan-to-value restrictions and tighter credit standards for cash-out loans. Interest rates are usually higher in a cash-out loan compared to other loan programs. Borrowers should make sure that they have enough equity to match the cash-out guidelines.
How Do Cash-Out Refinances Work?
Cash-out refinances give homeowners additional cash from the equity in their home. Take for example, a homeowner who has a loan for $100,000 on a property that is worth $400,000. The homeowner can use a cash-out refinance on the property for the existing loan plus some extra that they wanted in cash.
If the homeowner wanted $50,000 in cash, they could refinance for $150,000 loan (the amount owed plus the amount they want to receive in cash).
Why Do People Do Cash-Out Refinances?
Homeowners in California use cash-out refinances for many different reasons. Some popular reasons for doing a cash-out refinance are:
- Lower interest rates on a new loan and reduced monthly payments
- Shorter loan term
- Change the type of loan from adjustable to a fixed-rate mortgage
- To use a portion of their home’s equity for home improvements, tuition, debt consolidations, etc.
The best way to find out if a cash-out refinance is the right move for you is to talk to a mortgage lender. You can contact JVM Lending to talk through your options at (925) 855-4491 or email us at [email protected].