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Cash Out Refinance

 

 

 

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Use your home to tap into equity.

Did you know that U.S. home prices increased by more than 5% during 2019? In fact, according to the Federal Housing Finance Agency (FHFA) housing price index, home prices have risen by about 50% since 2012 and are more than 22% higher than the previous peak in 2007. 

According to mortgage experts, Black Knight's January 2020 Mortgage Monitor Report:

Tappable equity – the amount available for homeowners with mortgages to borrow against before reaching a maximum combined LTV of 80% – eased seasonally in Q4 2019.. but is still, at $6.2T, tappable equity marked its highest year-end total on record
There are currently 44.7M homeowners with equity available to tap via cash-out refinance or home equity line of credit (HELOC)
The average homeowner holds $119K in tappable equity, up $8400 from the same time last year

 If you need money to improve your financial situation, including home improvements, consolidate debt, or pay for college expenses and have equity in your home, then consider a cash-out mortgage. 

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Cash out refinance basics
  1. Learn About a Cash-Out Refinance

    What is a cash-out refinance?

    A cash-out mortgage combines a traditional (rate/term) refinance with an additional sum above your current mortgage balance. Instead of taking out a second mortgage (either a Home Equity Loan or a Home Equity Line of Credit), you take out one mortgage that pays off your existing loan and leaves you with money in the bank. 

    The most significant factor that affects your home equity is the housing market. Rising home prices lead directly to an increase in home equity. One way of tapping into the wealth and fixing one mortgage payment for all of your home loans is to take out a cash-out mortgage. 
  2. Calculate your equity.

    How much equity do you have?

    Home Equity 
  3. Calculate your loan-to-value ratio (LTV).

    What is your LTV?

    Home Equity 

How Does a Cash Out Refinance Work?

Family Using Cash Out for Better Live

 

How can you take out more money than you owe? 

A cash-out mortgage is based on the amount of equity you in your home. Mortgage lenders use a loan to value ratio (LTV) to determine how much cash you can take out. A purchase mortgage or a standard refinance mortgage is capped at about 95-97% of your home value. However, a cash-out mortgage is limited to 80% on a conforming loan for a single-unit primary residence.

Do you Need Excellent Credit?

In addition to the LTV, mortgage, lenders will look at your credit history, credit score, qualifying income, and debt to income ratio (DTI). The most popular cash-out mortgages today are conforming loans backed by Fannie Mae and Freddie Mac, which require a minimum score of 620; However, you may be surprised to know, but you can qualify with less than good credit scores from lenders who are offering non-QM cash-out mortgages.

 Family Using Cash Out for Better Live

Bills.com Cash Out Mortgage Calculator

Do you have equity in your home? Do you need cash to consolidate debt, make home improvements, or pay for college expenses? Use Bills.com's Cash-Out Refinance Calculator and find out how much you can borrow and your monthly payments.

1
How Much Equity Do I Have In My Home?
Your home equity depends on the value of your home and your mortgage balance. If you have more than one mortgage, then use the total amount for your “Mortgage Balance.” The result box shows both your Loan to Value ratio (LTV) and the total amount of equity, in dollars, you have based on current values.
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=
LTV
(Loan to Value Ratio)
My Equity is Now:
2
How Much Cash Can I Take Out?
After completing step one you have a good idea of how much equity you have in your home. However, the amount of cash you can take out of your home depends on lenders underwriting rules. In general, lenders offer up a LTV up to 80%, although some lenders do offer higher ratios.
Maximum Cash Available Is:
3
How Much is My Current Monthly Mortgage Payment?
Your current monthly payment (principal and interest) is based on your mortgage balance (see step 1), the number of years left to pay, and your current interest rate. If you have mortgage insurance, then you will need to add this to your overall calculation. We recommend that you contact us for further advice.
Existing Mortgage Payment Is:
4
Calculate Your New Cash-Out Mortgage Payment
Figure Out How Much Your Payment will be based on current mortgage rates, the length of the new loan, and the amount you wish to add to your current mortgage
Make sure the amount doesn't exceed maximum amount available
Your New Cash-Out Mortgage Payment Will Be:
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Make sure the amount doesn't exceed maximum amount available
Why take out a cash out refinance mortgage

Top reasons to take a cash-out refinance

Bills.com recommends that you consider taking out cash from your home in a manner that best improves your financial situation. The most important reasons to take out a cash-out refinance are Debt Consolidation, Home Improvements, and Home Repairs, Finance College Expenses, and Pay Big Bills.

A cash-out can significantly improve your lifestyle. Maybe you accumulated debt? Cash-out mortgage debt consolidation is a great way to get a reduced interest rate and affordable monthly payments. Did you push off essential repairs? A cash-out refinance can let you complete home repairs such as a new roof, new flooring, or badly needed appliances.

One thing to keep in mind: Don’t use the money frivolously. A cash-out mortgage is not a gift. Consider your overall financial situation. Do you want cash for an expensive vacation? In general, it is a bad idea to finance consumption items using a long-term loan. 

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People also ask
What are my cash out refinance alternatives?

Cash-Out, Home Equity Loan, or...?

A cash-out is not necessarily the best solution for your financial situation? If you currently have a mortgage at a rate and you can afford high monthly payments, then consider a home equity loan (HEL) or a home equity line of credit (HELOC). The new interest rate will only apply to the new smaller mortgage, and you save on lower closing costs.

If you cannot qualify for a cash-out mortgage, or the payments do not fit your budget, then check for other solutions. If, for example, you are looking to consolidate debt, then check out the Bills.com Debt Payoff Calculator for a personalized debt solution.

What are cash-out refinance trends?

Learn about cash-out mortgage trends in 2018. A combination of rising home prices, increasing incomes, and attractive but higher mortgage rates make for both opportunity and a need to carefully analyze the situation. Maybe you can benefit from a cash-out refinance? Get more information about the latest trends.

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