First of what does it mean to refinance?
- In simple terms, refinancing means replace an old debt with a new debt.
- If you’re making all your monthly payments on time, the banks might be willing to work with you and get you better rates.
What is home Equity?
- Simply put, home equity is the amount of value your home has above and beyond all existing liens
- A lien is money owed on a property (usually in the form of a mortgage, but not always the case)
- In all of these situations you would be borrowing against the equity that’s been built up in your home (due to appreciation and paying off your mortgage over time.)
So what exactly is a cash out refinance and why might be beneficial to know what it is?
- Basically a cash out refinance pays off your first mortgage (if you have one), but gives you a brand new one with different rates and length of time.
- In simple terms you eliminate your first loan, with a second larger loan, and you get to keep the difference
- You receive this money in lump sum (meaning you get all of it at once)
What is a home equity loan?
- A home equity loan gives you an ADDITIONAL loan (so 2 loans total assuming you have a mortgage on the property)
- This second loan will have completely different terms
- Also available in lump sum
What is a Home Equity Line of Credit?
- A revolving line of credit available to you for a specified amount from the equity built up in your home
- You can withdraw from your home equity line of credit as needed (meaning you can only take what you need)
- Offer a bit more flexibility
Why would any of this make sense?
- You can use that money to invest in another property and start cash flowing
- Large purchase
- Emergency
- Home improvement
- Wedding
- College fund
- Debt consolidation
- Medical bills
- This cash is used TAX FREE (and the gov does not count the money as income)
- Pay off other, higher interest debts (such as car loans or credit card loans)
- Launching a business
- I’d recommend talking to multiple loan officers so you can have leverage during negotiations