Cash-out refis, short for cash-out refinances, are very common types of refinances for consumers. A cash-out refinance is simply refinancing your home and using the equity in your home to get some extra cash back to you at closing. For example, lets say you have a home that is worth $200,000, you owe $120,000. This means you have $80,000 worth of equity in your home. Lets say that you want to get $20,000 cash back from refinancing to do some home remodeling. You would then refinance for roughly $140,000 (120k current loan balance + 20k desired cash out amount = 140k new loan amount) and you would receive $20,000 back from the new lender you refinance with after closing. While you could use all of the equity in your home, it is usually a good idea to try and stay at 80% LTV, loan to value, or below. Loan to value is the percentage of how much your home is worth divided by your loan amount (100,000 home value; 80,000 loan = 80% LTV).

There are many good reasons to get cash out. Many people will do this to pay off debts and improve their credit rating. Some people even cash out to take advantage of investment oppourtunities.

Cash Out Refinancing is one of the leading ways for borrowers to take profits from the increased value of real estate assets without recognizing a gain for tax purposes. If your home or other property has appreciated substantially over the past few years, cash out refinancing may be the most efficient means for you to separate cash from equity and take profits while the market remains high. Noted economists predict that housing prices may decline as much as 20% to 30% inflation adjusted over the next 5 to 10 years in the USA, so many borrowers are looking to cash out as much as they can from their properties to reallocate to another, more favorably performing asset class as a hedge against their real estate risk.

Many people in recent years have used a Home Equity Line of Credit(HELOC) for their immediate cash needs. A HELOC provides convenience in that you only pay interest on the amount borrowed currently. However, recent increases in the prime rate have dramatically increased the interest rates on HELOC's. Consult with your mortgage professional to see if a cash-out refinance to pay off a HELOC makes sense for you.

 

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