Unlock Hidden Savings and Money in Your Home
As Credit Education Month continues, we reached into our Mortgage Department to find out the secrets to unlocking the cash you’ve produced in your home over years of homeownership!
Life is full of milestone events. Some, we are able to prepare for and others we are not. Even those of us with the best of intentions find ourselves wondering how we’re going to pay those events whether planned or unplanned. Do you have a life changing event happening in your financial life? Do you need cash for college tuition, debt consolidation, or home improvement. Do you need to purchase a new car or take a much needed and overdue family vacation? Did you know that many of us are literally living in cash, even sleeping under it? But many families and couples don’t realize it, and furthermore have no idea how easy it is to find. The answer is literally YOUR HOME. Have you considered refinancing your home to tap into your home’s equity? The equity in your home allow you access cash you may not have known was available. Refinancing can also increase your monthly cash flow by reducing your interest rate on your mortgage and your monthly payments. Sounds good, right?
There are two types of refinancing options.
The first is simply refinancing your current mortgage balance to a lower interest rate and/or shorter loan term.
This is great option for people who don’t need a large lump sum of cash, but do wish to take the opportunity to lock into a lower interest rate. The outcome of this refinance is lowering their monthly payment and at the same time saving considerable amounts of money through the lower interest throughout the life of the loan.
The second is “cash out refinance”.
This option allows a Homeowner to tap into the “equity” in their homes. What is equity? Equity is the difference between what you owe (mortgage balance) and what the appraised or market value currently is on your home.
Your home is appraised value is - $200,000
The amount you still owe on your home is - $100,000
The equity in your home is - $100,000
Wow! That’s a lot of wiggle room! But remember, different types of loans can and do dictate how much equity is available in cash. For instance, a typical Conventional Loan would usually permit 80% of your home’s appraised value for a “cash out” refinance.
So, how does that translate to your wallet? Let’s continue using our example above to illustrate:
Amount of equity available ($200,000 X .80%) -$160,000
The amount you still owe on your home -$100,000
Amount of cash/equity available to you -$ 60,000
Remember, our example is using the Conventional Loan. However, if you are using a government loan, such as a FHA loan, you may be able to access up to 85% of your home’s equity. A VA loan may allow you access to up to 100% of your home’s equity. These options are definitely topics to discuss with your mortgage professional. They can walk you through the options and give you an idea of how much money would be available to you.
Whether you decide to increase your monthly cash flow by refinancing to lower your interest rate, to reduce the remaining years left to pay on your mortgage, or, you decide you need a little extra cash to satisfy a financial event in your life (remember: the interest could be tax deductible) now is an outstanding time to consider refinancing your home with interest rates near historical lows.
Blog by: David W. Ashman, Mortgage Loan Officer NMLS#465952