If you can access a cash-out refinance, it may be a good option. These types of refinance work by replacing your mortgage with a new home loan at an amount higher than what you owe. That way, you can access the extra funds as a cash payout.
A cash-out refinance has plenty of uses and quickly offers people high funds. You’ll want to consider all of the reasons below.
1. Access Lower Interest Rates
When you switch to the new home loan, you’ll want to ensure that it has a lower interest rate than your current one. You could save thousands throughout the home loan if it does.
A low-interest rate means you won’t have to spend as much. The loan may be larger than your old one, but it won’t gather interest nearly as quickly. Even if you lower the interest rate by 2%, you’re sure to notice a positive impact on your funds.
According to Forbes, switching to a lower interest rate means lowering your monthly payment. Plus, you can lower the interest you pay over time- making it essential for those who want to spend less on their home.
Overall, refinancing is very helpful when you want to lower your interest. You’ll want to choose rates at least 2% lower than your current one.
2. You Can Pay for College
Photo by Element5 Digital on Unsplash
If you have a lot of equity built up in your home, a VA cash-out refinance can quickly provide you with the funds you need for an expensive cost. There are plenty of high expenses that most people encounter in their lives, the main one being college costs.
You can use a cash-out refinance whether you need to pay for your schooling or for another family member. It’s usually better than taking out a student loan with a much higher interest rate. Although, you should compare your options to make sure.
You receive the difference between your old and new loan at closing, meaning you get all of it at once. So, you’ll need to make sure that you save the funds for going to school. Opening a new savings account and putting the money there would be good. Then, don’t touch it until you need to pay for tuition and other college costs.
Overall, college is very expensive. A student will spend about $35,331 to attend school for four years. Certain conditions can cause you to need to pay much more than that! If you have enough equity built up in your home, you could cover all, or most, of the four-year tuition.
3. You Can Consolidate Debts
Photo by Towfiqu barbhuiya on Unsplash
Next, completing a cash-out refinance allows you to consolidate all your debts. Many people have credit cards, car loans, student loans, and maybe other personal loans. You don’t want to stick with these debts with high-interest rates.
Instead, apply for a VA cash-out refinance. Use the money you receive to pay off all those debts- now everything’s in the same place! Many people appreciate this option because they only need to keep track of a single debt from that point on.
4. You Can Make Home Improvements
Photo by Sam Clarke on Unsplash
Another popular reason to use a cash-out refinance is to make home improvements. If you want a new kitchen, bedroom, or bathroom, you already know the cost will be very high. However, you can use the refinance to pay for the remodel.
Plus, making home improvements increases your property’s value, so it’s sure to be worthwhile. Still, many of us want to improve our home because we spend the most time there- you don’t need to have a reason to remodel.
If you want to remodel your entire home, you can expect to spend between $15,000 and $200,000– the price changes depending on what you want to do. However, if you have a lot of equity in your home, you can use it to cover most of these expenses.
It does cost a lot less to renovate a single room. So, if you want to work on a specific area of your home, using this type of refinancing can make it possible for you.
5. You Get Tax Deductions
Additionally, a cash-out refinance can qualify for mortgage tax deductions when you use the funds to improve your property. Several projects count for the deductions, including:
- Adding a new bathroom or bedroom to the home
- Installing a fence
- Upgrading your roof
- Replacing old windows with strong storm windows
- Adding a security system
- Adding central air or heating
- Installing a swimming pool outside
These additions also make your property more valuable, so knowing you get a tax deduction makes them extremely appealing to many people. If you aren’t sure what counts as a deduction, ask a local tax expert. Many projects are eligible, but not all of them.
The mortgage interest tax deduction is usually the largest one you can qualify for.
6. It’s a Cheap Way To Get Money
Due to high-interest rates on other types of loans, a VA cash-out refinance can be the cheapest way to get a lot of money at once. If you take out a personal loan, the terms you receive with it won’t be as good.
If you have an emergency or need a large sum of money, you want to ensure you find the cheapest way to get it. For most people, cash-out refinancing is the best option. You can find lower interest rates, so you don’t pay as much on the mortgage.
Plus, low-interest rates mean you won’t have to pay as much over the loan term.
You Can Use the Cash Any Way You Want
Once you have the money from the refinance, you can use it however you want. You can pay off your debts or use the cash to improve your home. There is also home improvement financing available that can help you get easy access to loans with low-interest rates
There are no restrictions on how you use the funds, so spend them wisely!