Make Home Improvements With a Cash-Out Refinance

Home improvements and renovation projects don’t only spice up your living space, they can also increase the value of your property and make you fall in love with your house again.

Whether you’re planning a kitchen remodel, a bathroom remodels, an addition or you’re thinking about updating your doors and windows, home improvements aren’t cheap. Some people use money from their personal savings to finance these projects, others use a credit card, and sometimes, there’s the option to finance home improvement projects with a contractor.

Another option is using a cash-out refinance for home improvements. While this type of refinance can put extra cash in your pocket, it’s important to understand how the process works, and then determine whether it’s the right move for you.

What is a Cash-Out Refinance?

A cash-out refinance involves refinancing a mortgage, and in the process, tapping your equity to borrow cash against your home. Refinancing refers to the process of getting a new home loan to replace an original mortgage.

Here you can read our blog about "Smart Reasons to Refinance Your Home Loan".

Refinancing is a common practice in the lending world. When mortgage rates decrease, home loan refinance applications typically increase because many people refinance to take advantage of a better rate.

A lower interest rate can reduce the amount of interest you pay over the life of a loan, and it can also lower your monthly payment. But this isn’t the only reason to refinance.

Some people also refinance to lengthen or shorten their mortgage term, and others refinance to convert an adjustable-rate mortgage to a fixed-rate mortgage. Refinancing is also an option if you want to change home loan programs, like switching from a conventional loan to an FHA loan, or vice versa.

Regardless of the reason for refinancing, you can tap your equity and get your hands on cold, hard cash—depending on how much equity you have. In general, you’re able to cash out about 80% of your home’s equity.

The good news is that you can use this money for just about anything. Home improvement projects are a common reason to refinance, especially since major updates tend to be costly. Yet, some homeowners also refinance and borrow cash to consolidate debt*, fund college, start a business, or pay for a wedding.

Making improvements to your home can greatly improve your living space, and updating a space is sometimes easier (and cheaper) than moving. You don't have to worry about selling your home or negotiating the price of a new property. And depending on how much you currently owe on a property, your mortgage balance after cashing out some of your equity might be less than what you would spend on a new property.

What You Need to Know About a Cash-Out Refinance?

Although a cash-out refinance is one solution for financing home improvement projects, there are several things you need to know about this process.

First, getting a cash-out refinance depends on whether you’re able to qualify for a new mortgage loan. Having an existing mortgage doesn’t automatically qualify you for another one. We’ll still check your credit history and review your income to ensure you meet the minimum requirements for your chosen mortgage program.

Also, refinancing involves closing costs, so make sure you prepare for this expense. In some situations, you might be able to wrap closing costs into your new mortgage balance to lower your out-of-pocket expense.

Be mindful, too, that cashing out your equity isn’t free money. You’ll have to pay back what you borrow, and a cash-out refinance does increase your mortgage balance. To illustrate, if you currently owe $100,000 and you cash out $50,000 of your equity, your new mortgage balance jumps to $150,000.

If you refinance for another 30 years, your mortgage payment could decrease or remain roughly the same. This is all based on your new mortgage balance and interest rate. But if you choose a shorter term to pay off the loan sooner, your mortgage payment will likely increase.

Final Word

If you’re ready to make home improvements and give your space a much-needed facelift, contact the loan experts a Blue Spot Home Loans. We can discuss your home loan options and help you find a program that’s suitable for your situation. Call today or fill out the contact form.

Cherry Creek Mortgage Co., Inc. NMLS #3001, dba Blue Spot Home Loans. *Debt consolidation does not pay off the debt, please consult a financial advisor regarding the effect of consolidating short-term debt into long-term debt. This material is informational only and not an advertisement to extend credit as defined by TILA/Regulation Z nor an application for credit as defined by RESPA/Regulation X. All applications are subject to underwriting approval and determining applicant’s ability to repay. Not all applicants are eligible for or qualify for all loan products offered. All loan programs, terms and conditions are subject to change without notice. Rates and terms are valid as of the date of printing/distribution.