Model house and cash for the top 10 uses for a cash-out refinance

Top 10 Uses for a Cash-out Refinance

When home values increase and interest rates decrease, it can create the ideal conditions for refinancing a home’s mortgage. Depending on the equity accumulated and the borrower’s personal objectives, a cash-out refinance may be even more appealing. In fact, it’s currently the most popular option among refi programs and below we’ve outlined the top 10 uses for a cash-out refinance.

Whether you’re considering a new mortgage with cash back for consolidating debt, replacing your roof, or to assuage a financial emergency, the benefits of converting your equity can be multi-faceted. The loan amount can be larger because it’s secured by your home and the proceeds are tax-free. There are as many specific uses for the cash as there are homeowners, but we’ll briefly explore 10 that may speak to your needs.

1 | Home Improvement Projects

Using cash from your equity can be a great solution for big-ticket renovations. Not only can you avoid adding to credit card debt, but the right projects could increase the value of the home for future sale.

Some of the most popular and potentially profitable home improvements include new kitchens, adding a bathroom, deck, new roof, or certain energy-efficient upgrades.

2 | Debt Consolidation

If you’ve ever watched your credit card interest consume any progress made by paying it down slowly then you know that rates exceeding 20% APR can crush your best efforts. In contrast, a refinanced mortgage these days are in the 3-5% range. Consolidating your debt with a cash-out refinance can be a powerful tool to regaining financial health.

By taking the money you used for credit card payments and applying it to your principle, you can save thousands, pay off sooner, and improve your credit rating in the long run – as long as you maintain low or zero balances on those accounts.

3 | Back to School

There’s a lot of talk lately about student loan forgiveness, but the action may not benefit some soon enough. Whether it’s to get a handle on current student loan debt, or to invest in the education of you or a loved one, cash-out refinance might make the grade. Just remember to do your homework – pun intended – and make sure to weigh the costs and interest rates in borrowing against your home and pursuing a federal student loan.

4 | Want to Get Away?

This past year has left many homeowners itching for a change of scenery. With the increased equity in your current home, you can refinance for cash to put toward a down payment on a second home. Imagine the convenience as well as the money saved on hotel expenses. Or if you’d like to take your vacation home with you, invest in an RV and see the country.

5 | Property That Pays You Back

You can also leverage your second home as an investment property when you’re not using it, or perhaps seek out real estate with the sole intent of earning from it. It can make even more sense to borrow against one property if you’re collecting rent on another – whether short-term or long – so that it pays for itself over time. Real estate is an asset that can build wealth and increase your portfolio.

6 | Be Your Own Boss

If you’ve found your career priorities shifting this year, you’re not alone. Some extra cash can take that dream of your own business a reality, whether for equipment, employees, or a cushion until things get off the ground.

7 | Protect Your Business

Or perhaps, you already own an existing small business and want to have emergency capital on hand to safeguard your company from financial uncertainty. Because the old adage about banks only loaning money when you don’t need it can be closer to the truth than not, it may be wise to tap your home’s equity before you need it. Being in a good place financially also means you’ll get a better interest rate now. Many lenders work with self-employed borrowers by means of alternative programs like bank statement loans, so it’s worth exploring.

8 | Cover Your Assets

Cash from your home’s equity can help protect your investments by avoiding fees from early withdrawals and potentially increase your tax savings in IRAs and other programs. Diversifying your holdings can also protect you in a downturn in the housing market. It’s always wise to confer with a trusted financial advisor before deciding.

9 | Medical Expenses

Unexpected health emergencies can upend even the most careful financial planning. While most institutions will work out payment arrangements, it can sometimes make sense to use a cash-out refinance to avoid collection action that can lead to negative impact on your credit standing.

10 | Nest Egg

The fallout of the pandemic has made people much more aware of the unpredictable nature of the world, which can evoke a need for security – financial and otherwise. If your home has gained significant value and you find yourself considering any of the previous nine uses for cash, then you may feel better tapping some of that equity for possible future needs. A nest egg provided by your nest just might offer the peace of mind to plan ahead.

While most financial advisors will steer you away from big-ticket purchases that can’t be recouped, there are many practical and personal uses from the funds in a cash-out refinance. Our team at EnTrust Funding (ETF) is happy to sit down with you and evaluate your home’s value, your qualifications, and the pros and cons of refinancing right now. Contact us today for more cash-out refinancing solutions.

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