When you’re seeking to refinance your mortgage, you usually have three options. The first one is rate-and-term financing that gives you a new loan with lower interest payments. Another is consolidation refinancing, where all your debts are merged for more manageable payment. The third is cash-out refinancing, which allows the borrower to withdraw the asset’s value in exchange for a higher loan amount.
It’s important to find out the best refinancing option and the lowest mortgage refinance rate for your house in Utah or California. Refinancing your mortgage through a cash-out sounds attractive, but where should you use that money? If your decision is gearing towards that third option, here are some smart ways to spend your home equity:
To pay off other debts
You can pay off high-interest credit card debts and replace these with mortgage debt that has a significantly lower interest. However, to do this, you must not owe more than 80% of the home’s value following your refinancing.
Just be careful not to collect debt again. Since you’re increasing the mortgage balance by how much debt you paid off, you run the risk of surrendering your home as collateral if you are unable to make monthly payments.
To upgrade your home
Starting home improvement projects doesn’t only upgrade your living conditions, but it also increases the property’s value. This makes it easier for you to recuperate your investments once it’s time to put the property up in the market.
Be sure to stick to generally sought-after renovations like landscaping, adding a deck, building a second bathroom, or remodeling the kitchen. Anything too specific and extravagant might work against its odds to be bought.
To pay off education
Why not increase your stock instead? With the money you get from cashing out your equity, you can pay off your tuition when you apply for higher studies. Boosting your knowledge base sets you up for better jobs, which means a more stable financial standing down the road.
Another option is to pay for your child’s similar endeavor. That money can go to their college tuition, so you can help them have a brighter future.
To start your business
If you’ve ever dreamed of running your own business, then here’s the opportunity presenting itself. The relationship between your mortgage and your business, if all goes well, can be mutually beneficial. Use the money to start a business, and it can pay off your mortgage debts in the long run.
Before launching a business, make sure to find a decent lender and devise an effective model. Create a turnaround plan, too, so you have a plan B just in case your business goes sideways.
To buy your next home
It might sound strange, but paying for a second home’s down payment with the money you cashed out from your current home’s mortgage is doable and viable. This especially works if you plan to keep the current one as your permanent residence, and you’re buying a second one as an investment property.
However, do check the terms of your refinancing mortgage first. Some may state an obligation to stay in the property for at least a year upon closing.
There are lots of things you can start building with your home equity, but the thing you must do with every option is to plan as far ahead as possible. You’re not in the clear yet, so you have to be two to three steps ahead of yourself if you want to make your mortgage payments.
Meta Title: Opting for Cash-out Refinancing? Here’s Where that Money Should Go
Meta Description: If you’re inclined to cashing out your house’s equity after refinancing, then there’s a lot of ways you can spend that cash smartly. Here are some of them.