Many people think that the only reason to refinance their mortgage is to reduce monthly mortgage payments but there are quite a few reasons why refinancing may be a good choice. One very popular reason for refinancing is to obtain cash by taking advantage of the equity in your home. A cash-out refinance is one of the easiest and smartest ways to accomplish this. At Peoples Home Equity we offer great rates and terms on cash-out refinances to homeowners throughout San Diego.
How Does a Cash-Out Refinance Work?
Traditional refinancing involves replacing your current mortgage with a new one of the same amount. Most often this is to reduce monthly payments through lower interest or adjusted terms. A cash-out refinance replaces your current mortgage with one of a greater amount. You will receive the difference between the loan amount and your home’s value in cash when the loan is closed. Borrowers often take advantage of both lower interest rates and the ability to take cash out of their home with a cash-out refinance. Currently, San Diego cash-out refinance loans are available at up to an 85% loan-to-value (LTV) ratio.
Home equity loans and Home equity lines of credit (HELOC) are similar alternatives to cash-out refinancing. HELOCs are lines of credit secured by your home and are often used for more short term financing. Home equity loans on the other hand are a separate loan on top of your existing mortgage. Typically, home equity loans will have a higher interest rate than cash-out refinance loans.
One of the biggest advantages of a San Diego cash-out refinance loan compared to other alternatives is the ability to lock in a low fixed interest rate. For those who financed their home originally at a higher rate, a cash-out refinance can be a great way to obtain a lower interest rate, while obtaining cash that is needed for a variety of reasons.
Use The Cash From a Cash-Out Refinance Wisely
People often use the money from a cash-out refinance for home improvements, consolidating high-interest debts, paying a child’s college tuition, and other various investments. Others use the money for vacations and new cars, however these types of purchases may not be the best use of the money received. These types of purchases offer little to no return on their investment whereas home improvements can help to increase the value of your home and high-interest debt consolidation can save you thousands of dollars in interest.
It is important to keep in mind that just like when closing a traditional mortgage, there are closing costs associated with a cash-out refinance. Closing costs tend to range from 3% to 6% so if you are refinancing a $100,000 loan, you can expect to pay $3,000 to $6,000 in closing costs. If closings costs are steep and your interest rate is a minimal improvement over your current rate, it may not make sense to refinance just yet.
At Peoples Home Equity, we want to help ensure you are making a smart decision about refinancing your San Diego home. We take the time to review closing costs, interest rate, and revised terms with each of our clients so that you have all of the information to make the best choice for your individual needs. If you have any questions about San Diego cash-out refinance options, do not hesitate to contact us today!