If you need cash to pay bills, replace a car, or make improvements to your home, a cash refinance is one way to get the funds you need. Lower interest rates could mean you’ll pay less than your current mortgage after refinancing, even if you factor the fees into the loan. The amount of money you can withdraw from your home depends on the equity you have built up in the home and the loan terms of your lender.

Equity

The equity in your home is the difference between the amount you owe on the home and its value. If you’ve been paying for your home for a while, you can assume you’ve built up a lot of equity. But falling home values ​​reduce your equity. Your equity doesn’t depend on how much you paid, but rather on the value of the house. Your lender will require an appraisal to determine your home’s value at the time of the loan, but you can look at recent selling prices of similar homes in your neighborhood to get an idea of ​​your home’s value. You can also contact local real estate agents and ask them for help assessing the value of your home.

Percentage of refinancing

Lenders limit the amount of a home’s value that they will finance. Some will lend 80 percent of the appraised value of the home, while others will lend only 70 percent. For example, if your house is worth $ 300,000 and you owe $ 200,000 on it, you have $ 100,000 in equity. If your lender lends up to 80% of the value of the house, the maximum amount of money you could access would be $ 40,000, which is 80% of the value of the house, 240,000 $ minus the $ 200,000 you still owe on the loan.

Qualification

Depending on when you got your original loan, the refinance process can be much more difficult than the initial mortgage process. A record number of defaults has made lenders more stringent than ever in qualifying people for loans. Be prepared to hand over your banking, tax and business records. Your credit should be in the best possible shape. If you have any outstanding issues on your credit report, try to resolve them before you apply for your refinance withdrawal.

other considerations

While refinancing is a good way to lower your interest rate and house payments, refinancing with cash may not be the best way to access equity in your home, depending on your needs. If you’ve built up equity and need cash, consider a Home Equity Line of Credit, or HELOC, which opens up a line of credit based on your home’s equity that you can access when needed. You can also consider a home equity loan, which works like a second mortgage. You’ll make payments on top of your first mortgage, but the loan terms may be better than a refinance loan because the amount you borrow is smaller.