Lenda reduces paperwork & headaches for homeowners looking to get cash from a refinance.
Why Cash-Out With Lenda?
Our refinance service helps homeowners who want to cash-out by saving months of time and providing a frictionless experience. We provide complete transparency online and pass on the savings from our technology-driven process to you, in the form of lower rates and closing costs.
Possible Uses of a Cash-Out Refinance
If you have high-interest debt from credit cards, unsecured personal loans, auto loans, or student loans, you can use a cash-out refinance to pay them off and carry the debt at a lower interest rate.
Home improvement projects have the potential to pay for themselves by increasing the value of your home. Larger projects make the most sense for a cash-out refinance.
When you are purchasing a new investment property, taking cash out of an existing property is often cheaper than other sources of capital.
When you are training for a new career, the interest rate on a cash-out refinance can be cheaper than the interest rate on a new student loan.
If one party to a divorce wants to keep the family home, but the value of the asset needs to be split, a cash-out refinance may be able to pay the other party who is not keeping the home. Title changes can also be made through the refinance.
You can use a cash-out refinance to pay for things like vacations. However, we generally recommend trying to save up “short-term wants”, rather than using debt to pay for it.
Defining a Cash-Out Refinance: What Does it Mean?
The definition of a cash-out refinance is when you refinance your existing mortgage for more than you currently owe, and use the difference to achieve a goal. For example: your remaining mortgage balance is $150,000, and you would like to do home improvements that will cost $50,000. In this case, you would do a cash-out refinance with a new loan amount of $200,000 (your existing balance plus the new $50,000). A cash-out refinance can also be referred to as a cash-out mortgage.
Benefits of a Cash-Out Refinance
- Tax Benefits: Mortgage interest payments are tax-deductible, unlike credit cards and other forms of debt. However, if the cash is used for anything other than home improvement, the tax benefits are limited to $50,000 or $100,000. Please consult this page from the IRS for more detail.
- Lower Interest Rates: Mortgages generally carry lower interest rates than credit cards and other forms of debt.
- Higher Credit Score: If you use the cash-out to pay off other forms of debt, you may get a credit score boost. This has the highest likelihood of happening when you pay off credit cards, as your revolving debt utilization for credit cards goes down.
Drawbacks of a Cash-Out Refinance
- Closing Costs: All refinances, including cash-out refinance, come with closing costs. These closing costs can be paid out-of-pocket or financed into the loan amount.
- Less Home Equity: After a cash-out refinance, you will own less equity in your home.
Requirements for a Cash-Out Refinance, Including LTV
- Home Equity & LTV: Loan-to-value (LTV) requirements vary by loan program, credit score, property use, and property type, but in general the LTV usually cannot be over 80%. The maximum LTV goes down to 75% if the property has 2 more units, is a second home, is an investment property, or if your credit score is less than 660.
- Other Eligibility Requirements: In general, all other eligibility requirements for a standard refinance apply to a cash-out refinance.
Cash-Out Refinance Summary
A cash-out refinance can be a very smart financial decision depending on your personal financial situation, though it may not make sense if the numbers don’t work or if you use a short-term, non-essential need. Use Lenda’s rate quote page to see if the numbers make sense for you.
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