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Everything to Know About Cash-Out Refinancing


The Spire
What Is Cash-Out Refinancing?

Some may be unsure whether it’s the right choice to refinance, our guide on deciding whether or not to refinance may be a great help.

What Is Home Equity?

Equity is the amount of the home’s value that you own, either in a dollar amount or a percentage. 

Two methods to increase the equity in a home:

  1. Paying the mortgage principle through monthly mortgage payments, this will increase the equity in the home with each payment
  2. The home increases in value through natural inflation or local property value changes

Building equity in a home is always good. It simply means that you’re becoming more of a full owner of the property!

Is a Cash-Out Refinance a Second Mortgage?

A cash-out refinance is not a second mortgage. A cash-out refinance doesn’t add another mortgage payment on top of an existing one. Rather, its paying off the old mortgage with the new one. The left over cash or the difference of the mortgages is now usable for a number of expenses like; renovations, repairs, existing debts, and other expenses.

Do I Have to Use the Cash for Home Expenses?

No, the cash from a cash-out refinance can be used for any specific purpose. Any expense is free game to use the excess money on. Some people decide to put it towards home expenses, others also use it to consolidate debt or pay off another loan.

How Cash-Out Refinancing Works

Each lender will have different requirements. However, here are the general guidelines for the mortgage refinance:

  • A credit score of at least 620
  • A debt-to-income ratio of less than 50%
  • Some equity already built in the home

Once comfortable with the requirements, determine how much cash you’ll need to get from the refinancing to help meet any financial goals. Then, submit the application and wait for approval. Remember that they may require a bunch of financial documents that can prove that you’re able to take on the larger mortgage. Some of these documents include: pay stubs, W-2’s or 1099’s, tax returns, insurance, statements of debt, and more. Ask about what documents are needed and get these ready before starting the application process so that you’re ready to go as they’re asking for documents. If approved, a check will be sent out typically in three to five days after closing.

Cash-Out Refinance Example

Let’s also say that they want to make $50,000 worth of renovations. After adding this to the remaining mortgage amount, we’d get $250,000. So, the new mortgage will be for $250,000, and they’ll receive the $50,000 in cash a couple of days after closing.

Benefits of Cash-Out Refinancing

Whatever financial goals someone may have, a cash-out refinancing mortgage can help achieve those goals. In order to build a case for the lender, a close estimate of how much the loan will be needs to be calculated, double check how much money it will take to teach those financial goals. Once the loan is approved the window of getting more money closes, remember this in any calculation in case more money is needed in the long run. Lastly, a cash-out refinance can help with negotiating for a lower interest rate on the mortgage. If someone is looking to consolidate their debt, this is especially helpful for them. Often, the interest rates on loans like mortgages are much lower than those on credit cards and other lines of credit. So, if someone is looking to get rid of any debt, they should consider a cash-out refinance. They’ll end up paying less over time as the money will compound on a lower interest rate. They’ll also only be paying one bill a month to account for all of their debt, no one wants to be paying a bunch of bills every month. 

Our Cash-Out Refinance Calculator

Our team at Spire Financial offers cash-out refinancing options for people every day. Looking to get started with a mortgage refinancing opportunity, look no farther, start refinancing your home with us.

Get started with Spire Financial today! 

A Lending Hand for Financing Home Mortgages

Spire Financial (A Division of V.I.P. Mortgage, Inc.) brings lending expertise to you. All of our loan officers offer personalized communication for every client, guiding them through the process. We can show you ways to maximize your finances and unlock future opportunities. Spire Financial keeps you in control of refinancing, debt consolidation, and home equity. Together, we can achieve your financial goals.