Life amidst the coronavirus pandemic has been frightening for everyone. Aside from hearing the steady increase of infected people on the news each day, seeing business operations shutting down and people losing their jobs can make you worry more about your financial stability.
Despite the poor economic activity, however, the good news is that there are still many ways to access money for your needs and financial goals, such as using a credit card or taking out a loan. Homeowners, in particular, have an interesting option they can opt for: cash-out refinance.
In essence, it is a combination of refinancing and a home equity loan. Sometimes also called “cash-out refi,” this is an option to refinance your mortgage and borrow money simultaneously. The new mortgage is larger than the existing one, and the difference is that it goes to you in cash. People use cash-out refinancing for various purposes, such as paying off debts, funding home improvements or repairs, or starting a business.
If you are interested in opting for this financial assistance, you should first know its advantages and disadvantages to help you decide whether it is the right move for you.
Advantages of cash-out refinance
1. It is a cost-effective way to borrow money
Compared to other types of debt, the rates of refinance mortgage are usually lower, and it can also be repaid over a longer period. Compared to a large amount of debt that must be repaid in 5-10 years, repaying mortgage debt can be more manageable because they can be paid up to 30 years.
2. It is strategic
A cash-out refinance can help you maximize your finances. For example, in the event that market rates drop from the time you took out your mortgage, the cash-out refi will not only let you borrow money, but it will also allow you to pay a lower mortgage rate.
3. It is easier to acquire
Compared to home equity loans or HELOCs, the cash-out refi is usually much easier to acquire. In fact, some home mortgage lenders even encourage homeowners to consider this option.
To successfully acquire cash-out finance, make sure that your home has sufficient equity. This is because the lender will use this equity as a basis to determine how much extra cash to give to you. Talk to your lender about this aspect so that you can proceed as safely and as wisely as possible.
Disadvantages of cash-out refinancing
1. It is only a short-term solution
Your home is one of your most valuable assets, which is why you should use it as collateral every time you find yourself in a tight financial situation. Take care of it and use it only when you come up with a thorough plan.
2. It can cost you your house
While securing a cash-out refi can be relatively easy, it is a serious financial decision to make, and it should be treated in that way; after all, it is your house that is on the line. Getting a cash-out refi without proper budgeting or consultation with loan experts can make you end up in deeper debt than you have been before.
People usually take out loans for a wide variety of purposes. They can be used to fund their biggest financial goals, their kids’ education, and the necessary home repairs and renovations, among others. However, remember that your cash-out refi is a loan, not free money! For this reason, you must first carefully weigh its pros and cons to make sure that it will be the right decision for you and your family.
Studying the types of loans and deciding which one is good for you can be overwhelming.
We’re here to help you from the start as you apply for a loan in Los Angeles! Our expert financial advisors will be happy to guide you through our various financing options for your real estate property.