Clients often ask me if there is a way to lower their monthly mortgage payment. More often than not, these clients want to pay off credit cards, student loan debt, or car loans. Once I determine their purpose for refinancing, I often suggest they consider a cash out refinance mortgage. This allows them to potentially eliminate other debts while also lowering their monthly cash outflow.
How a Cash Out Refinancing Works
You’re probably familiar with how refinancing a mortgage works. If not, here’s a quick overview of the process. You take the balance of your home loan and pay it off with a new mortgage. The new mortgage has new terms which often create a smaller monthly payment or a shorter term for the loan.
A cash out refinance works similarly, but with the key difference being you refinance for more than the balance of your previous mortgage. The difference between the balance on your old mortgage and new mortgage amount is given to you in cash. Here is an example:
Current Home Value: $300,000
Current Mortgage Balance: $200,000
New Mortgage Balance: $240,000
Cash Back at Closing: $40,000
A cash out refinance is a great way to immediately eliminate unwanted debt and lower your family’s monthly payments. With interest rates hovering just above 3%, now is a great time to refinance. If you have questions on whether or not a cash out refinance is a good idea for you, please don’t hesitate to reach out to me and my team.