Need Cash to Pay Off Debt?

When most people think about refinancing, they think about how it is a way to lower their monthly mortgage payments. This is not always the case when dealing with a cash-out refinance! A cash-out refinance is when you use your home's equity to get access to financial assets such as stocks and bonds. After paying off your existing mortgage with the proceeds from the new loan, you can withdraw this money in any form of payment that suits you best. The most common way to use these funds is to pay down debt such as credit cards, student loans, and other loans.

Source of Funds Options:

Home Equity Loans:

The first option is to take out a cash-out loan against your home equity. One of the advantages of this option is that you have no monthly mortgage payments while the money is being used to pay off other debts. You can also keep the home equity loan in place for several years after your new loan has been repaid, if you wish. The third advantage of this option is that you can take out a loan for up to 80% of the home's value. This can be a lot more than most credit cards, and it will feel good to have all that debt paid off! You can add this loan to your existing mortgage, thus saving paperwork and time spent on a second application. The only downside is that you have no monthly payments until after the money has been used, but this will not matter as long as you get it paid off quickly.

Home Equity Lines of Credit:

Another option is a line of credit, sometimes called a home equity line of credit. This is similar to a home equity loan in the fact that you are borrowing money from your home's equity and there are no monthly payments until the loan is used. The difference with this option is that you can access the line of credit as needed, so you can pay off your debts slowly instead of all at once. However, unlike a home equity loan, you may not use this money to pay off other debts. You can only use the line of credit for making everyday purchases or to pay off some of the existing debt so that you can save your home equity.

Personal Loans:

You may also use these funds for other types of debt consolidation, such as credit card consolidation. You can get a personal loan from any bank or credit union, and you can use the loan to pay off your credit card debt. You may use this money to pay off your credit card debt in one lump sum or you can make automatic payments so that a portion of the money goes to paying down debt each month. The only issue with this option is that most personal loans come with a higher interest rate than a home equity loan, though they are still much lower than what you are paying on your credit cards.

CDs and Mutual Funds:

It's a good idea to consolidate all your CDs and mutual funds so that you can take advantage of the lower interest rates on CD s. You can get a personal loan and use it to pay off one of your CD s, or you can make a more elaborate payment schedule on all your CDs. The interest rate on CDs is usually much higher than the interest rate on credit cards and home equity loans, but they are also tax-free.

How does the cash-out refinance work?

The cash-out ratio is based on the amount being refinanced and the appraised value of your home. For example, if you are refinancing $80,000 and the appraised value of your home is $150,000 an 80% cash-out refinance is possible. If you have an amount of equity higher than the cash-out amount then that is how much equity you will be giving up. For example, if there is $100,000 worth of equity a 90% cash-out or 10% down payment would be necessary. Just make sure that you have a realistic appraisal otherwise you will be stuck paying more than you need to.

Some of the benefits

A lower interest rate, access to new financial assets, and tax advantages. The most common way people use cash-out refinance is by using the cash for debt consolidation or retirement. You can always start by calculating. Cash-out refinance are popular and we can see why many people choose this route.