Everything to Know About Cash-Out Refinancing

What Is Cash-Out Refinancing?

A cash-out refinance is a kind of mortgage refinancing option. It allows someone to take advantage of the equity that they have already built with their home, enabling them to get cash in exchange for taking on a larger mortgage. In other words, a cash-out refinance allows one to borrow more money than they owe on the mortgage, then they can save the difference. This option for mortgage refinancing may also allow some people to get a lower interest rate on the mortgage loan. Typically, for a conventional cash-out refinance, it’s possible to take out a new loan for up to 80% of the value of the home. 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

The cash-out refinance process is similar to the process of buying a home. Once all of the requirements for a cash-out refinance are met, choose a good lender and submit an application. 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 say that someone bought a home for $300,000. And so far, they have paid off $100,000 of the amount. The difference would give us the amount that they still owe on the home: $200,000. 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

A cash-out refinance comes with different benefits, depending on why someone is applying for the mortgage refinance in the first place: they may be funding home improvements and renovations, they could be paying off student loan debt, they might be consolidating credit card debt, or they could even free up a little bit of that money to invest in something. There are many financial things that someone would consider getting a mortgage with cash-out refinancing for.  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 mortgage cash-out refinance calculator can help determine what kind of mortgage refinance option is a good fit. Once you have an idea of the kind of cash-out refinancing offer that is suitable, reach out to us. 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.



V.I.P. Mortgage, Inc. DBA Spire Financial does Business in Accordance with Federal Fair Lending Laws. NMLS ID 145502. For state specific licensing, visit www.vipmtginc.com/national-licenses/. V.I.P. Mortgage, Inc. is not acting on behalf of or at the direction of the FHA/HUD or the Federal Government. This product or service has not been approved or endorsed by any governmental agency, and this offer is not being made by any agency of the government. V.I.P. Mortgage, Inc. is approved to participate in FHA programs but the products and services performed by V.I.P. Mortgage, Inc. are not coming directly from HUD or FHA. Information, rates, and programs are subject to change without notice. All products are subject to credit and property approval. Not all products are available in all states or for all loan amounts. Other restrictions may apply. This is not an offer to enter into an agreement. Not all customers will qualify.

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