How to make cash out refinance work for you?

If you have plans to complete renovation at home or make a big purchase such as such as a new investment property, car or shares you might use your home equity to borrow money and cash out refinancing will be a good option for you.

Read further to know more about cash out refinancing and how to use it.

Cash out refinancing replaces your existing mortgage with a bigger home loan, helping you to take advantage of the equity that you have managed to built up in your home and provide you with access in cash to the difference between your existing old loan and the new one.

This money goes directly to your bank account and can be virtually used for any purpose. You can even get the funds in an offset account, as a line of credit, etc., and this is better than taking additional personal loans. However, it might increase the time it takes to pay off your mortgage.

To understand cash out refinancing better, you need to know about your home’s equity. Our experts at NG Loans are there to guide you through the entire process and help you tap into home equity.

Do remember the home equity is calculated based on your property’s current market value. Suppose you bought a home worth $500,000 some years back and took a $400,000 loan for it. So, if your remaining debt currently is $200,000, it means you’ve built a home equity of $300,000, assuming your home’s value is the same. Now, if your home’s value has increased, then the amount of equity will be more too.

There are multiple ways to increase your home’s value and leverage your home’s equity. To raise your home’s value, you can renovate parts of your home, make repairs and refurbishments, build new bedrooms, build a granny flat, etc. Additionally, if you live in posh area with good transport facilities and surroundings, your home’s value will be higher.

If you are unsure about your home’s equity, try using this home equity calculator and see how much money you can use out of it.

Just like any other refinancing option, cash out refinancing follows a similar process. You can follow these steps to make the process easier.

1. Order a free property report on our website and figure out how much home equity you hold approximately. Your chosen lender will calculate it again but having an idea helps.
2. Make a proper plan regarding why you want the cash and where you want to use it. Lenders will ask all this before refinancing.
3. Compare multiple loan providers and choose the best option for yourself.
4. You can consult a mortgage broker for proper advice based on your financial situation.
5. Know about the fees involved and apply for cash out refinancing with your lender.
6. Your new loan provider will send a proper mortgage discharge form to your existing provider.
7. Wait for things to play out and prepare for loan refinance settlement.

You receive the cash in your account, and your lender cannot control how you spend this money. However, lenders might ask for proof regarding how you will spend the money. Different lenders will have a different valuation of your home equity and limits to how much money you can borrow.

Most loan providers allow you to borrow 80% of your home’s market value without LMI (loan mortgage insurance). If you’re prepared to pay for LMI this could let you borrow up to 90% of the value of your home but it will add to the cost of your home loan repayments.

Some lenders place restrictions with the fear that you may use the cash for wrong purposes. Also, remember that you have to pay the money back over the loan period, which may mean high interest.

We will help you understand the whole process and ensure that cash out refinancing is beneficial for your situation.

People generally use cash out refinancing for the following purposes:

• When you use cash from your home’s equity, your home loan will go up. Make sure you plan for this change and can pay this extra money back. 
• Sometimes people pick up bad habits by accessing home equity and using it to pay other debts. They pick up a habit that can lead them to troublesome financial situations. 
• You get extra cash through cash out refinancing, but it increases your overall home loan and your monthly repayments. You may find it difficult to pay extra money and may have to increase your loan term.
• If your existing home loan is at a fixed rate, you have to pay a break fee for refinancing it. As you refinance the loan before the fixed term, lenders charge a break fee. Consider this fee beforehand and make sure it does not affect your budget too much. 
• Book an appointment at NG Loans with our mortgage advisors and home loan specialists to know if cash out refinancing is feasible for you and you can afford it.

Borrowing money from your home’s equity and refinancing your existing mortgage is a great way to help out in times of financial need. You can use it to pay other high-interest debts, investments, buy property, or anything else you want. In the above blog, we read about how to increase your home’s value and leverage its equity for refinancing. 

Keep in mind that your home loan will increase, and you will need to pay higher each month. Go for cash out refinancing only if it's really important and you are confident that you can pay it back without much trouble.

Feel free to contact our team of experts at NG Loans, who will put forth all the numbers in front of you and let you know if cashing out from your home equity will benefit you in the long term. You will get all the assistance needed for refinancing your home mortgage here.