Your primary residence may not necessarily qualify as an asset until it’s fully paid off. However, it becomes an asset if there is positive equity in it, meaning its market value is higher than the remaining loan balance. This can work in your favor since you can leverage this positive equity through a cash-out refinance. While there are numerous reasons for opting for a cash-out refinance, not all are prudent. Using your cash-out refinance for vacations or shopping sprees could just increase your debt. Instead, I want to discuss the top three reasons to consider such a finance option to benefit your financial stability.
1. USING CASH-OUT REFINANCE FOR HOME IMPROVEMENTS
When considering a cash-out refinance, most people immediately think about home improvements. It’s a popular strategy for increasing property value while also enhancing personal comfort or home functionality.
Consequently, home improvements can be an effective way to utilize funds from a cash-out refinance. Before you start your home renovation spree, though, it might be beneficial to seek advice from a real estate expert. They can guide you on the renovations that offer the best value for your investment. Common renovations that often generate good returns include:
– Kitchen Renovation
– Bathroom Upgrades
– Garage Door Replacement
– Siding Upgrades
– New Windows
– Entry Door Replacement
– Landscaping
Keep in mind that not all renovations guarantee a high return on investment. This largely depends on your home’s current condition and the specific upgrades you make, as well as the local housing market.
2. DEBT REPAYMENT
Another wise use of a cash-out refinance is to eliminate existing debt. Homeowners often have access to additional financial resources that renters do not. Consequently, if you are in this advantageous position, why not capitalize on it? Utilizing the funds from a cash-out refinance can potentially save you thousands, especially if you have high-interest debt that needs repaying. For example, if you have credit card debt with a 29.99% APR, and you can refinance that with a 3% APR mortgage refinance, you could be saving a significant amount in interest.
3. CAR LOAN REPAYMENT
Paying off car loans with funds from a cash-out refinance can also be beneficial, though this depends on your car loan’s interest rate and the repayment period left. Paying off car loans helps free up cash each month, making budgeting simpler and potentially les stress inducing.
Often, the extra amount you pay towards your mortgage from a cash-out refinance doesn’t match the money spent on monthly car payments. For example, the extra $500 – $600 a month saved by not having car payments can go towards necessary expenses or boost your emergency fund, providing peace of mind.
IN SUMMARY
There are undoubtedly various compelling reasons to consider a cash-out refinance. But, it’s crucial to remember that not all of them are financially sound. Hence, before making a decision, ensure your refinance will improve your monetary situation without causing further financial burdens. If used wisely, these funds can greatly help in areas such as:
– Home Renovations
– Debt Repayment
– Car Loan Repayment
The best use of a cash-out refinance should secure your future financial stability. Let me know what has worked best for you!
