The American Dream of buying a home is often leveraged with a long-term mortgage loan. However, certain instances may provide an opportunity to change the terms of the original mortgage loan for a variety of benefits. Right Start Mortgage explores what it means to refinance a home loan for cash out.
About a Mortgage Refinance
When a home is purchased without completely paying for it with cash, the buyer generally makes a down payment toward the property’s sales price and secures financing for the difference.
Veterans and current servicemembers of the U.S. Armed Forces may have obtained a home loan without a down payment, while homebuyers who secured a mortgage loan from the Federal Housing Administration could have purchased a home with just a down payment of 3.5 percent.
When a mortgage loan is obtained, the lender will receive a security interest within the subject property, and a lien is secured via a note for the amount owed.
As certain financial opportunities arise, the homeowner may decide to replace the original mortgage with a loan that has a more attractive interest rate or a shorter term.
A mortgage refinance facilitates financing to pay off the existing loan with funds from the current lender or another mortgage lender in the marketplace.
Cash-Out Refinance Explained
In a traditional mortgage refinance, the new loan that is secured against the borrower’s home will pay off the principal and interest balance for an existing mortgage note.
Generally, this type of transaction is called a rate and term refinance loan, hence, the goal is to reduce the borrower’s interest rate or to change the repayment time frame for the mortgage loan.
A cash-out refinance enables a homeowner to access a portion of the equity within the property.
Shown below are some of the items that borrowers pay with a cash-out refinance:
- High-interest credit card debt
- Home improvement costs
- Personal loans
- Medical expenses
- Travel costs
The amount that a homeowner can obtain for a cash-out refinance loan will largely depend on the current appraised value of the property and the borrower’s overall financial condition.
Speaking with a licensed loan officer about refinancing a mortgage loan for cash out is an excellent way to obtain more insight about the process.
Right Start Mortgage offers favorable mortgage interest rates and reliable lending services in AZ, CA, CO, NV, OR, TX, WA, WY.
Contact us today to discuss honest mortgage lending solutions
* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.