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In today’s economy, with cooling but still stubborn inflation and higher interest rates meant to combat it, many Americans may find themselves looking for new ways to help make ends meet. Relying on traditional products like credit cards and personal loans can be costly currently thanks to double-digit interest rates on both. Homeowners, however, have a safe and reliable option at their disposal right now: their home equity.
While home equity loans and home equity lines of credit (HELOCs) are two of the most popular ways to tap into your home equity, there are also major benefits to accessing it via a cash-out refinance. This involves taking out a new mortgage loan for an amount larger than what you currently owe. Owners then use the new loan to pay off the old one and keep the difference between the two as cash that they then pay back to their lender.
The cash obtained this way can be used for a variety of reasons ranging from home repairs and renovations to financing major expenses like weddings or college. Or it can help you resolve some of your existing debt. But there are other major benefits to cash-out refinancing to know now. Below, we’ll break down three of them.
Learn more about how cash-out refinancing can help you here now.
3 big benefits of cash-out refinancing to know now
Here are three major advantages to a cash-out refinance to understand today.
Access to a large sum of money
If your financial situation has been hurt in recent years then access to a large sum of money can be beneficial right now. While you’ll generally be limited by how much you can borrow with a credit card or personal loan, a cash-out refinance can result in access to tens of thousands or even hundreds of thousands of dollars, depending on how much equity you have in your home at the time of application.
Most lenders will allow you to borrow as much as 80% of that equity. That said, you should carefully examine your needs and goals before proceeding as your home will serve as the collateral in these circumstances.
See how much you can access with a cash-out refinance today.
The interest rate may be lower than the alternatives
While refinance rates are higher now than they were in recent years (currently at 7.28% for a 30-year traditional refinance) and may be slightly higher for a cash-out refinance, they’re still markedly better than popular alternatives. Credit card rates right now are 20% or higher and personal loans are often in the double-digit range, too. Refinance rates are lower than both alternatives, giving you more flexibility to pay back the cash you borrowed.
You may qualify for tax deductions
One major benefit of using home equity loans and HELOCs is the interest tax deduction if the funds are used for eligible home repairs and renovations. But that same benefit extends to cash-out refi loans, too, if used for eligible purposes. Plus, any money withdrawn from your accumulated home equity won’t count as income, so you won’t have to pay taxes on any cash received.
As is the case with tax implications, however, it’s smart to consult a tax professional in advance to better understand how a cash-out refinance could affect your tax bill.
The bottom line
There aren’t many viable ways to access large sums of cash without getting saddled with a burdensome interest rate right now but a cash-out refi loan can help. By pursuing this unique form of financing homeowners can potentially secure much more money than they would have with some other options and they’ll likely pay a lower interest rate to do so. And they may qualify for some advantageous tax benefits that are simply not available with other products. For all of these reasons, homeowners should consider the benefits of cash-out refinancing now and consider acting to get their finances back on track.
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
