15 Mar Is Cash-Out Refinancing Right For Me?

Using the equity in your home is a great way to get quick access to cash, but it’s also important to decide whether a cash-out refinance makes sense for you overall. The most important question to ask is, “What are my goals?”

If you’re looking to use cash to fund an exotic vacation, cash-out refinancing may not be worth the potential long-term cost. However, if you’re planning to use the money to pay off high-interest debt or renovate your home, the monthly payment savings or home value might make long-term financial sense.

A CASH-OUT REFINANCE can be a good idea if you want to refinance and access the value in your home. Cash-out refinancing gives you a new mortgage and lets you borrow more than what you owe, keeping the difference as cash.

A cash-out refinance can make sense if your new loan gives you a lower interest rate – say, you bought your home when rates were much higher – and you plan to use the cash for home improvements or college expenses.

What Is a Cash-Out Refinance Loan?

A cash-out refinance pays off your original mortgage and starts a new mortgage with new terms, including annual percentage rate, loan length, and amount. At closing, you’ll get the difference between the new mortgage balance and the value of your home. Generally, you can cash out up to 80% to 90% of your home’s equity.

Can You Get a Cash-Out Refinance?

A cash-out refinance loan could be harder to obtain as lenders scrutinize borrowers to protect against pandemic-related losses. Many lenders have raised minimum credit scores and loan-to-value ratios, making it tougher to qualify. The coronavirus outbreak has affected the global economy, and the lending industry is no exception.

If your income has dipped because of COVID-19, “That could get in the way of loan approval,” McClary says. “A Federal Housing Administration loan may give borrowers in these circumstances a little more flexibility on credit score guidelines but still maintains a 43% debt-to-income ratio and will require the borrower to purchase mortgage insurance.”

How Long Does a Cash-Out Refinance Usually Take?

Closing on a cash-out refinance generally takes at least 30 days but could stretch to 45 days or longer because record-low mortgage rates have created a great demand.

Every lender works on its own timeline. Ask yours to explain the process, including how long you’ll wait to get your funds and how you’ll receive them – by check or direct deposit in a bank account. After the bank closes on your loan and pays your expenses, you can expect to wait about three to five days before you receive your cash.

If you have second thoughts on your loan after closing, you have a brief window of time to cancel. The Truth in Lending Act requires your lender to give you three business days after closing to cancel the refinance.