How A Cash Out Refinance Can Help You
If you’re a homeowner, the best investment you have is right under your nose – so many people forget about that. So, when you think about your assets, your savings accounts, mutual funds, or even your car come to mind.
But what about your house? The place you call home is perhaps the biggest asset you have and it can actually help you out in times of need.
Your Home’s #1 Stakeholder
Let’s talk about your equity – What exactly does equity mean? No worries – here’s a breakdown using numbers so you can follow:
Say you bought your home for $340,000 and you currently owe $220,000 (what’s left on your mortgage that you need to pay off).
In effect, you would have $120,000 in equity – in other words that’s the amount of your home that you own.
Cue a cash out refinance. It can help you out in more ways than one – like if you have debt and want to consolidate, if you want to do some remodeling, or add on an office for that home business.
Cash Out and Consolidate
Ready to find out why a cash out refinance could help you pay debt down faster AND save you money? Here’s a real life example to understand the concept:
Joe’s car was at the end of its life on top of a couple of steep credit card bills that he was only paying the monthly minimum. With average credit card rates from 15.99% all the way up to as much as 20.90%, paying off those cards could take Joseph years and he would pay way more in excess of the actual total balance.
For instance, a total balance of $5,000 with an interest rate of 18.9% and payments of only $200 every month, he would end up paying a total of $8,109.16 at the end of 137 months, which is a little under 11.5 years – over $3,100 more than he had to pay! Joe would be digging himself a deeper hole in terms of debt.
However, Joe’s got something up his sleeve. He has equity in his home, which would allow him to do a cash out refinance.
He bought his home for $300,000 and still owes $200,000, leaving him with $100,000 in equity. He’s got $6,000 in credit card bills and wants to buy a pre-owned car for $9,000. He can get $15,000 in his through a cash out refinance to pay off his debt, buy the car and then he would be in the clear.
All he would have to do is pay off his new cash out loan on time every month. This would free him up from paying way too much in interest on his credit card, plus he’ll have a new more reliable ride. Overall, a win-win situation saving him time, money and headaches.
Reinvest Equity to Help Upgrade Your Home
Investing in your home is usually a great idea, especially if you plan to stick around and stay awhile. If you bought your home but the kitchen and bathrooms needed some updating, a cash out refinance for those major renovations can go a long way.
Kitchen and bathroom remodeling can be pretty pricy. They’re a good investment if you plan onstaying in your home for a while or even selling.
If you do go for that remodel, a cash out refinance is a great way to make you happy plus it will help your property value go up for whenever you do decide to sell your home.
Remember – one of the biggest stresses in life is financial. When people experience financial hardships, it pretty much affects just about every part of their lives.
When PricewaterhouseCoopers’ (PwC) financial services firm conducted an annual financial wellness survey, 53 percent of employees were stressed out about financial issues with some employees bringing the problem to their jobs. The financial struggle is real, according to the survey:
- 50% Spend 3± hours dealing with finances at work
- 51% Saved less than $50,000 for retirement
- 55% Struggle to make minimum credit card payments
Getting back on track with a cash out refinance can help pay off bills or fix up your home, alleviating financial stress.
Since it’s not a second home loan and has less risk for the lender involved. All you have to do is make your payments on time and you’ll be on your way to financial wellness or building out your dream home.
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The NJ Real Estate Show, a weekly radio show hosted by real estate veteran Tim Waller, sat down with Get...Buying a HomeFinancial Tips