As a homeowner, you have a valuable financial tool right at your doorstep – your home’s equity. Your equity is the current market value of your home minus what you still owe on your mortgage. You build equity when you make payments on your mortgage, or if the value of your home goes up. One of the ways you can access your equity is through a cash-out refinance, which could be a useful solution to help you achieve some of your financial goals.

Learn about a cash-out refinance below, and when it could be right for your situation.

How a Cash-Out Refinance Works

With a cash-out refinance, you take out a new mortgage (with new rates and terms) that’s larger than your current one, and you receive the difference in cash for using how you want. Here’s an example: 

• You own a home that’s worth $350,000, and you still owe $200,000 on your current mortgage. That means you have $150,000 in equity in your home. 
• You want to access $50,000 of that equity through a cash-out refinance. To estimate what your new loan would be after a cash-out refinance, add the equity you want to take out to the amount you have left on your current mortgage. In this case, that would be the $200,000 you still owe, plus the $50,000 in equity that you want to take out. So, your new mortgage would be for $250,000.

When Would a Cash-Out Refinance Make Sense for You?

There are a number of situations where a cash-out refinance could help you simplify your finances and work toward your short- and long-term goals. Here’s when it could be a good option: 

• Paying off higher-interest debt: If you have high-interest personal loans, credit card balances or auto loans, using your home’s equity to pay off that debt could be a great use of a cash-out refinance. The interest rate on your new mortgage would likely be much lower than on those other types of debt, helping you save money on interest payments over the long run. 
• Funding education: A cash-out refinance could also be a good option for paying off education expenses. If you or a family member will be going to college and you need to cover tuition costs, a cash-out refinance could provide a lower interest rate than personal loans or student loans. 
• Paying for home improvement or renovation projects: If you want to make improvements to your home, a cash-out refinance could help you finance the project at a lower interest rate than you could get elsewhere. Plus, making renovations or improvements could help increase your home’s overall value and help you build even more equity for the future. 
• Emergency expenses: Sometimes, life happens and you may need funds to pay for unexpected expenses. As with the above examples, a cash-out refinance could help you access the cash you need at an affordable rate.

Contact a Bell Bank Mortgage Lender Today

A cash-out refinance may not make sense for every situation, so contact a Bell Bank Mortgage loan officer near you today to start the conversation. Your loan officer will discuss your situation and goals, and help you come up with a plan for moving forward.