A cash-out refinance is a type of mortgage refinancing that enables you to cash out your home equity. Your prior mortgage balance is exceeded by the amount of the new mortgage, and the excess is paid to you in cash.
Refinancing is a common practice used to replace an existing mortgage with a new one in the real estate industry. The new mortgage often offers the borrower more favorable conditions. By refinancing a mortgage, you may be able to reduce your monthly mortgage payments, negotiate a lower interest rate, renegotiate the periodic loan conditions, remove or add borrowers from the loan obligation, and, in the case of a cash-out refinance, access cash from the equity in your house.
Example of a Cash-Out Refinance:
Consider a scenario in which you borrowed $200,000 to purchase a $300,000 piece of property, but you are still in debt by $100,000. You have also accrued home equity of at least $200,000, assuming that the property value has not fallen below $300,000. If rates have decreased and you want to refinance, depending on the underwriting, you could be able to get approved for up to 80% of the equity in your house.
Many people wouldn't necessarily want to take on the additional debt of a $200,000 loan in the future, but having equity can increase the amount you can receive in cash. Suppose your lender is ready to lend you 75% of the value of your house. This would amount to $225,000 for a $300,000 property. The remaining principal must be paid off with $100,000. You are now left with $125,000 in cash.
In the event that you simply want to receive $50,000 in cash, you would refinance with a $150,000 mortgage loan that has new terms and a reduced interest rate. The targeted $50,000 that could be borrowed in cash along with the $100,000 remaining on the existing loan would make up the new mortgage.
To put it another way, you can take on a new $150,000 mortgage, receive $50,000 in cash, and start a new installment payment plan for the entire total. This is the benefit of collateralized loans. Since the $100,000 and the $50,000 are merged into one loan, the drawback is that the new lien on your home now covers both amounts.
Work with a direct lender for your best Texas Commercial Loan Financing. From first-time buyers of commercial loans to cash-out refinancing, Commercial Loans of Texas handle it all.
