4 smart uses for withdrawal refinancing
Refinancing your mortgage is a great way to lower your monthly mortgage payments and save on interest. And when it comes to refinancing, you have a choice. You can do regular refinancing, where you get a new mortgage with a balance equal to what’s left on your current home loan, or you can refinance with cash.
Withdrawal refinancing allows you to borrow more than your mortgage balance. For example, if you have enough equity in your home, you may be able to refinance a mortgage of $ 120,000 when you only owe $ 100,000 to your current lender. This additional $ 20,000 would then be returned to you in the form of a check and you could use it as you wish.
You can refinance withdrawal for any reason – responsible or not. But while withdrawing money from your mortgage to go on vacation or buy electronics might not be the smartest thing to do, here are some great uses for a cash refinance.
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1. Reimbursement of credit cards
If you owe money on your credit cards, you may be paying a pretty high interest rate on that debt. As such, a cash refinance could help make that debt less costly to pay off. Let’s say you qualify for refinancing at an interest rate of 3%. And let’s also say that your credit cards are currently charging you an average interest rate of 14%. Clearly, paying off a loan at 3% is more beneficial to you than at 14%. Plus, reducing your credit card debt could improve your credit score by lowering your credit utilization rate, which is not negatively affected by your mortgage debt.
2. Cover medical bills or debts
It’s an unfortunate fact that sometimes even people with good health insurance find themselves forced to pay expensive medical bills that they can’t afford (and those with bad or no insurance are even more likely to have to pay for it. being slammed by expensive health care bills). If you have medical debt, refinancing with cash could help you pay it off at a more affordable interest rate. And also, it could make this debt more manageable. Suppose you are currently paying three separate medical bills over time. With withdrawal refinancing, you eliminate those bills and then pay just one bill – your mortgage – going forward.
3. Pay a deposit on a car
A car is a reasonable thing to have, especially if you live outside of a city. If money has kept you from buying a car, a cash refinance could be your ticket to a new set of wheels. Having a reliable vehicle could open the door to a new job, earn a generous side income (whether you decide to drive for a rideshare company or take shifts as a delivery driver), and have easier access to essentials. , such as supermarkets and pharmacies.
4. Make home improvements and repairs
Maybe you have some big renovations to plan, but you are running out of money to pay for it. In this scenario, a cash-out refinance could be a good solution, especially given today’s affordable rates. Improving your home can do more than just make it more comfortable, it can also add resale value to it. So if you were waiting to finish your basement for extra living space or expand your small kitchen, a cash refinance could make that possible. Likewise, if there’s a big home repair that you put off due to a lack of cash, a cash refinance could help you fix that problem quickly before it gets worse.
Should you do a cash-out refinance?
There are risks associated with refinancing with cash. If you take on a larger mortgage and are having trouble making your payments, you could risk losing your home. But if you can swing those higher payments, refinancing with cash could help you meet other important money-related goals.
If you are not sure how much of a monthly payment you can handle, you can use this mortgage calculator to calculate the numbers showing your loan amount (in this case your current mortgage balance plus the amount you would like to withdraw in cash), its duration and the interest rate you expect to get. Here’s a look at what refinance rates look like today. Having this information will help you decide if withdrawal refinancing is right for you.