Cash-Out Refinancing and Home Equity in Texas

In simple terms, a cash-out refinance replaces your current mortgage with another loan that:

Pays off your current mortgage balance.
Uses the equity in your home to provide additional funds for other purposes.

A cash out loan is a way to both refinance your mortgage and cash out your home’s equity at the same time. You can refinance your mortgage and receive a check at closing. The balance owed on your new mortgage will be higher than your old one by the amount of that check, plus any closing costs rolled into the loan.

Cash-out refinancing is basically a combination of refinancing and a home equity loan.

Texas Cash-Out Refinance Loan Programs

Do you live in Dallas or anywhere in Texas? Have you ever wondered how you can carry out two important financial tasks at the same time? We found a seamless way to do it:

1. Refinance your mortgage to a new lower interest rate.
2. Borrow additional money to pay bills or use in any way you see fit.

Essentially, this is what cash-out refinancing is all about. Of the three popular home equity loan types, cash-out refinancing loan is one; fixed-rate home equity loan is another; and HELOC (home equity line of credit) is the third.

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Cash-Out Refinance vs. Fixed-Rate Home Equity vs. HELOC

Cash-Out Refinance

This is the type of loan you take out on an existing loan either to get lower interest rates and/or to borrow additional funds.
Fixed-Rate Home Equity

As the name implies, the fixed-rate home equity loan provides a fixed interest rate that fully amortizes over a predetermined period.
Home Equity Line of Credit

With HELOC, your interest rate depends on the market rate; unlike the fixed-rate home equity loan, your monthly mortgage payment is calculated from your loan amount and your interest rate.

Let’s examine the when, the why and the where for cash out loans.

When and Why is a Cash-Out Refinance Loan Right For You

Homeowners finance and refinance loans for different reasons, but why should you? If your answer points to only lower your interest rate, then maybe it’s time to do an evaluation. Here are some metrics to help you with your decision.

Liabilities vs Assets

It’s necessary to understand why you need to take out a cash-out refinance loan. If it’s just for spur-of-the-moment shopping or just to have extra cash on hand, then it is not wise to increase your liabilities; but if it’s to fund education for yourself, your significant other, or your kids, or if it’s to invest in a current business, then it may make sense to consider a cash-out refinance.
Lower interest rates

Fortunately, the interest rate for this type of loan does not fluctuate like HELOCs, so if the interest rate falls below your current rate, it may be a good time to take advantage. Doing so may save you some costs, both in interest paid over time, as well as actual monthly payments.
When you qualify for cash-out refinancing

Your qualification is dependent on factors such as your creditworthiness, your current income and your stake/equity in your house.
Length of stay

How long do you plan to stay on this property? If it is a short timeframe, for instance, a couple of years, then cash-out refinancing may not be a good option.
Refinancing costs

It’s vital for you to understand the closing costs for your new loan: appraisal fee, application fee, title insurance and closing costs, etc. Should these costs outweigh the cost to be saved on monthly mortgage payments, you might want to weigh your options to determine if this is the right loan for you.
Effective tax rate*

Before you refinance, you should compare your effective tax rate pre-refinance and post-refinance. Should you see a significant increase in the amount of taxes you will pay after the refinance, it is best to reconsider your decision.

*Supreme Lending is not a licensed CPA or Tax consultant and therefore, cannot determine if your mortgage interest will be eligible as a tax deduction per IRS code. You are advised to contact a tax professional. This in no way implies you are guaranteed a tax credit.
Long term thinking

This has to do with weighing the term remaining on your current loan. How much time you have left on your mortgage adds up to how soon you can pay it off or the amount you pay over a long period of time.

Advantages of Cash-Out Refinancing

Refinance mortgage rates tend to be lower than the interest rates on other types of debt, so it’s a very cost-effective way to utilize your home’s equity. You can use the cash to pay off these high interest debts such as credit cards or a home equity loan.

Mortgage debt can also be repaid over a considerably longer period than other types of debt, up to 30 years, so it can make your payments more manageable if you have a large amount of debt that must be repaid in 5-10 years.

If market rates have dropped since you took out your mortgage, a cash-out refinance loan may turn your equity into cash and lower your interest at the same time.

When to Consider Cash-Out Refinancing

How do you know if a cash-out refinance is the right move? There’s no hard-and-fast answer to that question, but you may want to consider refinancing if any of the following situations apply:

Interest rates have dropped substantially since the last time you financed your home.
You intend to stay in your home for several more years.
You can shorten your loan term.

Important Questions To Think About Before Cash-out Refinancing

With a cash-out refinance, you need to weigh the benefit of how you’re going to use the money against the amount of time it will take to pay off the loan. Refinancing may give you a lower interest rate, but if you extend your loan term, you may pay more interest over the life of the loan.

Here are some things to think about:

How many years until the end of the term of your current loan?
How long is the term of the new loan?
You can shorten your loan term.
Are interest rates lower than your current financing?
How much cash do you need?
What’s the monthly payment amount?
What’s the effect on your taxes?
What’s the total cost of borrowing?
What’s your break-even point?

A Quick Scenario

To qualify for cash-out refinancing, you need to have a certain amount of home equity. That’s what you’re borrowing against.

Let’s say your home is worth $250,000 and you owe $150,000 on your mortgage. That gives you $100,000 in home equity or 40% of the home’s value.

You generally want to retain at least 20% equity, so that gives you $50,000 available to borrow.

To borrow that amount, you would take out a new mortgage for $200,000 ($150,000 already owed plus $50,000) and receive a $50,000 check at closing. This doesn’t consider your closing costs, which are 3-6% of the loan amount and are often rolled into the mortgage.

To help you answer these questions and determine whether a cash-out refinance may help you, contact us today and we’ll help you get started.

Where Can You Take Out a Cash-Out Refinance Loan Program?

Supreme Lending Dallas offers cash-out refinance loans. We have an efficient cash-out refinancing programs for borrowers in Dallas, Texas. Our goal is to close your loan in 20 days or less*. We will walk you through our six-step loan process:

You can start the application process and a Loan Officer is assigned to you and your application. The application form is available online, via phone, via fax, via email or in person.
Your credit worthiness will be evaluated based on recommended industry guidelines.
Once your intent to proceed has been granted, we will send you the initial disclosures.
The information from your loan application is compiled and processed.
After the property appraisal has been completed, the appraisal will be sent to our underwriting department.
When it’s time to close on your new loan, we will prepare and send the necessary documents to the title company. Afterward, we prepare your Closing Disclosure (CD) with final closing figures and deliver them to you to sign within a three-day period.

We offer you after-loan support on the phone. Visit us here to get started or call us at 214.442.0494.

*Closing in 20 Days or less is not a guarantee. Turn times may vary as each loan is different.