Texas Cash Out Refi: The What, The How And The Pros And Cons

Admin@ | February 8, 2019 | 0 | Business

Home Equity is the difference between your home’s real value and your outstanding liens attached to your property. In other words, we can describe equity as your interest in your home. This value increases over time as you’re able to pay off your mortgage.

When homeowners feel the need to improve their homes, fund debt consolidation or other financial needs, we often turn to our equity for help. Applying for a home equity loan such as a Texas Cash Out Refinancing allows you to tap into your home’s equity to serve many purposes.

Good Read: What Is Home Equity?

Defining Cash Out Refinancing

A Cash Out Refi allows you to borrow a larger loan than your first mortgage. It replaces your existing home loan, letting you pay off the mortgage and allowing you to use the remaining cash whichever way you want. The usual limit on a Cash Out Refi is up to 90% of your home equity.

Common Ways To Use The Money From A Cash Out Refi

Some of the most common ways people use the funds out of cash out refi are the following. Fund home improvement projects. Using the funds to improve home value is one of the best reasons to tap on your home equity.

  • Consolidate debts. When paying your credit card debts with your home equity, you’re putting your home at risk since your home secures the loan.
  • Pay for higher education. Instead of a student loan, homeowners can use their home’s value to fund college education for their children.
  • Start a business or other investments. There is no guarantee that you’ll be making money when you put up a company, buy real estate or invest in stocks. However, some homeowners still make use of the equity they have to fund investments.
  • Recreation purposes. One of the worst reasons to tap on your equity is by using it for expensive buys, luxurious trips, and even gambling.

Advantages of Using A Cash Out Refi

  • The significant amount of money one will be collecting can amount to at least ten of thousands of dollars.
  • It lets you use the money to serve a different number of purposes which can either help you solve your financial problems or add debt to your name.
  • Your house secures the loan which meant you get relatively low rates.
  • You get to stretch out your payments since you’re replacing your existing mortgage.
  • If you use the funds for home improvement, you get to receive potential tax benefits since interest payments are tax deductible.

Good Read: How to use a home equity loan for debt consolidation

Drawbacks of Using A Cash Out Refi

  • Cash out refi means you’ll need to go through a whole new loan application process and provide a substantial amount of financial information.
  • Since it is new debt, you’ll need to start over again to repay your new mortgage.
  • If you’re unable to pay off the loan, you’re risking your home for foreclosure.
  • Borrowing more than 80% of your equity may mean you’ll need to pay for Private Mortgage Insurance.
  • You need to pay upfront closing costs for cash-out refinancing.

Like any other mortgages, Cash Out Refinancing has its pros and cons. It lets you gain access to your equity, use it any way you want and get a good rate and terms. However, one should be careful as it is your home that is at stake.

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