Short of cash? Do you need to renovate your home? Well, you are in luck because you might just have the treasure you are looking for, right in your home. Actually, it is your home.
Many lenders are saying that you may refinance and convert part of your home equity to money as many homeowners are doing now, the Los Angeles Times reported.
Cash-out refinancing was the trend way back in the era of the housing boom, particularly 2004 to 2007, LA Times added. During the housing bust and financial crisis of 2008, these loans were gone and almost unheard of.
Recently, as home equity gains, the cash-out refinancing has come back, according to the outlet. Bank of America reportedly revealed a 47% jump on these loans this quarter compared to 2014 Q1 while for LoanDepot, a major non-bank mortgage originator, its cash-outs recorded a tremendous 78% increase during the first quarter compared to last year's.
So How Can One Get Cash Out From Their Home Equity?
For instance, you have a $500K home with a $300k mortgage, this leaves you with a $200K worth of equity. However, you should retain a minimum 20% of home equity in your home after the new debt has been added, LA Times explained.
If you like to take out $100k out of the $200K equity, you would refinance the $300k mortgage, and this will leave you now with a new $400k loan. The remaining equity is $100k ($200k less $100k) which is 20% of your home value of $500K.
But before you refinance, ask yourself: Is it the right time? According to Chase, it is good to refinance if the interest rates drop, or home values appreciate. With the current low rates as reported here on Realty Today, we say it is a good time to refinance.
Aside from cash-out refinancing, there are also other advantages of undergoing the process. Federal Reserve announced that you may get a lower rate for your refinancing loan if your credit score improved.
Chase notes that refinancing a home loan would also aid you to get reduced monthly payments. Thus, it will give you the more needed freedom to choose other channels to put your finances in.
We suggest for you to start a small business with the difference of the money you will save from doing so. You may also plan a trip for the whole family, bond family members, but make sure it will not be done in a lavished way.
Regarding the cash you will get directly from a cash-out refinancing, be very careful on how you spend it. Be wise and spend it with something worthwhile, after all, it is a loan. You do not want to use it all up in a few days or a month and suffer several years paying for it. Always look beyond the present.
