A Guide to More Money: Mortgage Edition (Refinance, Cash-Out)

Quiz time! As you read the summary notes for Refinances and Cash-Outs, there’s a common theme that ties them all together – see if you can find it.

Refinance

Looking at your current mortgage arrangement you may find yourself in the situation many other borrowers face as well – the current market carries better rates, your credit score has improved, or you have increased equity in your home over time – in any case, you now stand a chance at getting a better rate than when you initially signed your mortgage loan, if it was fixed-rate or was locked into a fixed rate in the past from an adjustable rate.

With a refinance^† you are able to change your mortgage loan’s rates and terms by essentially refreshing the loan. By taking advantage of refreshed terms and rates you could save on your monthly mortgage payment, making room to use the funds previously going toward your monthly mortgage payment for other purposes!

Most customers take on a Refinance for…

• Consolidating debt
• Paying off student loans
• Making home improvements and renovations
• Taking an extended vacation
• Paying for major expenses, like weddings
• Closing out high-interest cars, credit cards, or personal loans

Thinking a refinance may be right for you? Check out some frequently asked questions at our Knowledge Hub here: Cash-Out Refinance FAQs | Newrez

Cash-Out

A cash-out refinance is a type of loan that lets a borrower "cash in" the value of their home in exchange for cash, but how does it work?

When you finance a home with a mortgage, part of your monthly payment goes toward paying off the principal amount (the amount of money you originally borrowed without interest) and the other portion goes toward paying the interest on the loan – the interest may be variable or set, depending on your loan type, variable or fixed-rate.

With each monthly payment, you add to the equity, you have in your home, which means that your investment and wealth grow over time. Once you've turned your home equity into cash, that money is yours to spend, invest, or save in any way you like.

Most customers take on a Cash-Out Refinance for…

• Consolidating debt
• Paying off student loans
• Making home improvements and renovations
• Taking an extended vacation
• Paying for major expenses, like weddings
• Closing out high-interest cars, credit cards, or personal loans

Weighing a cash-out through Newrez? We’ve put together a blog post on the five potential benefits here in our Knowledge Hub: 5 Benefits of a Cash-Out Home Refinance | Newrez

Cash-In-Hand

Did you catch the common thread tying all three together?

Refinances and cash-Outs can be used to get cash in hand for major expenses or life’s little ups and downs – any choice takes the equity you’ve put into your home so far and puts it back to work for you.

It can be a great reminder that a home loan is an investment that can work for you over time – it isn’t just a black hole you send money to in order to live in your home.

Paying for College

Getting your hands on some extra funding to send yourself or your child to higher education sounds like a great idea, right? Well, of course, any investment in your future is a good one! However, there are pros and cons of financing this next step in your life through a refinance or cash-out.

Pros:

• A cash-out refinance means you’ll get money in hand to use however you want – there are generally no rules on how the money can be spent. This will free you up to pay tuition, transportation, books… The list is limitless.

Cons:

• When you fill out your Free Application for Federal Student Aid (FAFSA), the lump sum you get from your refinance will be added to your Expected Family Contribution. So, having more money in the bank could mean getting less money when it comes to federal student loan aid.
• If you refinance, you get a new loan with different terms, the former terms and rate of the mortgage before no longer matter. This could make your mortgage last longer and could also make the total cost of your loan go up over time.

Financing a Home Addition or Renovation

People often use the funds from refinancing to pay for home improvement projects. This is especially true when mortgage rates are low because other types of traditional credit tend to have higher interest rates – it makes sense to pay less over time.

Pros:

• If your refinancing lets you cash out enough money, you may be able to pay for all or part of your renovation without putting a strain on your regular budget.
• The value of your home may go up if you do home improvements that have a high average return on investment like redoing a kitchen or bathroom with new fixtures and appliances. So, if you choose the right renovation, you might be able to use equity to build more equity for a loan down the road.

Cons:

• While you may be able to benefit from a lower interest rate with a a reinance, some up-front costs like closing and service fees can be higher than traditional home improvement loans, driving up the total cost.

Consolidating High-Interest Credit Card Debt

Got a few credit card bills that could be paid down to save on interest?

Pros:

• Consolidating credit card debt with money from a cash-out refinance could mean paying off high-debt payments like credit cards, leading to serious savings in the long-run.

Cons:

• Consolidating credit card debt with a cash-out refinance moves the debt from a higher interest rate to a lower one, but it doesn't get rid of the debt. It may only be a short-term fix if you don't also change the way you spend.

Newrez Home Equity Loan †† 

Newrez Home Equity Loan is our new loan program built specifically for homeowners looking to tap the equity in their house without giving up their current mortgage. Keep your primary mortgage interest rate on your current loan when you secure a second mortgage. This new mortgage product has a fixed interest rate and is disbursed in a lump sum at the beginning of the loan. You’ll start repaying it immediately through fixed monthly Principal & Interest (P&I) payments. Plus, a Home Equity Loan with Newrez is secured by your house. This means you access larger sums of money at lower rates than credit cards or personal loans. 

Lenders determine how much you may borrow by considering the amount of equity in your home, your credit score, and your debt-to-income ratio. With a Newrez Home Equity Loan, we can lend up to 80% of what your home is worth. Once your fixed interest rate and monthly P&I payments are determined, you’ll receive the cash value as a lump sum at the initiation of the Home Equity Loan. 

Most customers take on a Home Equity Loan with Newrez for… 

• Consolidating debt 
• Paying off student loans 
• Making home improvements and renovations 
• Taking an extended vacation 
• Paying for major expenses, like weddings 
• Closing out high-interest cars, credit cards, or personal loans 

More Money in Your Pocket…

Talk about a lot of choices, right?

The great part about using the above programs over a credit card is that you often can gain access to a larger lump sum of funds to make the changes you want (and maybe plus some) without the high APR percentage and yearly fees found on most big-box credit cards.

If you're ready to get on the path to more money, it's time to meet with one of our loan consultants. After we gain an understanding of your financial picture, including your history and goals, we'll get you aligned with the right financing plan for you! What're you waiting for?