Cash-out refinancing can be a good idea for many people.
Mortgages currently have among the lowest interest rates of any type of loan.
CALCULATE THE EXACT AMOUNT YOU NEED!
If you are considering a cash-out refinance, you are likely
in need of funds for a specific purpose. If you are not sure what that is, it
can be helpful to nail that down, so you borrow only as much as you need.
For instance, if you plan to use the cash to consolidate
debt, then gather your personal loan and credit card statements or information
about other debt obligations and add up what you owe.
If the cash is to be used for renovations, consult with a few
contractors to get estimates for both labor and materials ahead of time.
PROS AND CONS OF A CASH-OUT REFINANCE
PROS can include:
- Your cost to borrow could be lower: Cash-out refinancing is
often a less expensive form of financing because mortgage refinance rates are
typically lower than rates on personal loans (like a home improvement loan) or
credit cards. Even with closing costs, this can be especially advantageous when
you need a significant amount of money.
- You can improve your credit: If you do a cash-out refinance
and use the funds to pay off debt, you could see a boost to your credit score
if your credit utilization ratio drops. Credit utilization, or how much you are
borrowing compared to what is available to you, is a critical factor in your
score.
- You can take advantage of tax deductions: If you plan to
use the funds for home improvements and the project meets IRS eligibility
requirements, you could take advantage of the interest deduction at tax time.
CONS right now might include:
- Mortgage Rates are higher now, so, this might only make
sense right now if you have a lot of credit card debt to consolidate, i.e.,
higher credit card rates = high interest you are paying each month on multiple
credit cards. Might make sense if you need funds for college, home improvement,
urgent reserves that might be needed in the near future. Consult with your CPA
or financial advisor to work the numbers first before proceeding.
Cash-out refinancing and your taxes
A cash-out refinance might be eligible for mortgage interest
tax deductions so long as you are using the money to improve your property.
Some acceptable home improvement projects might include:
Adding a swimming pool or hot tub to your backyard
Constructing a new bedroom or bathroom
Erecting a fence around your home
Enhancing your roof to make it more effective against the
elements
Replacing windows with storm windows
Setting up a central air conditioning or heating system
Installing a home security system
In general, the improvements should add value to your home or
make it more accessible. Check with a tax professional to see whether your
project is eligible.
I am here to answer your questions or run a cash-out scenario that fits your needs. Call Lisa @ 818-359-4145 or email your questions to: Lisa@trustlendingsolutions.com
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