Interest rates are near historic lows and are forecast to stay low for the foreseeable future. This is great news for those looking to refinance their properties or tap into their home’s equity. Instead of refinancing with a home equity loan or home equity line of credit (HELOC) , homeowners should consider cash-out refinancing.
Cash-out refinancing allows you to take out a new loan greater than the value of the original mortgage. As the borrower, you get to keep the difference between the loans in cash.
Is Cash-Out Refinancing Right for You?
Where home equity financing is a separate loan in addition to your mortgage, a cash-out refinance actually replaces your current mortgage. On top of that, a cash-out refinance often comes with a lower interest rate than a HELOC or home equity loan.
With cash-out refinancing, you can refinance up to 90% of the loan-to-value ratio (LTV). This ratio is the relationship between the principal balance of your mortgage and the property value. For example, if you have a home valued at $200,000, then 90% LTV allows you to get a loan of up to $180,000.
If you still owe $100,000 on a $400,000 house and want to take advantage of the lower interest rates and you also want $25,000 in cash, you can refinance the mortgage for $125,000. Get a cheque for $25,000 and use it however you like. Essentially, you’ll be paying a lower rate of interest on your mortgage while getting some extra cash to spend.
Am I Eligible for Cash-Out Refinancing?
Is your property eligible for cash-out refinancing? Like any financial product, there are restrictions and limitations to note. The following are some considerations that may help you qualify:
- If your property is an existing resale property (this excludes new construction)
- If your property is located in a market with ongoing re-sale demand
- If the estimated remaining life of your property is a minimum of 25 years
The maximum limit to how much equity you can remove from your property (save for certain instances) is $200,000. There are also a number of different terms and qualifying interest rates (fixed, standard variable, etc.).
Moreover, there are a number of borrower qualifications. A homeowner must have a minimum credit score of 600; no prior bankruptcy or judgement; and a mortgage that is assumable. Non-residing guarantors are not permitted. Non-residing co-borrowers are permitted as long as they are an immediate family member who’s on the title.
What Is the Best Time to Consider Cash-Out Refinancing?
There is no hard and fast rule to answer that question. However, you may want to consider cash-out refinancing if interest rates have dropped significantly since the last time you financed your home. Cash-out refinancing is also a good option if you plan on staying in your home long-term or even if you want to shorten the term of your loan.
As a result, there are some important questions you need to consider to determine if cash-out refinancing is right for you:
- Are interest rates lower than your current financing?
- How much money do you need?
- What will your new monthly payments be?
- What is the total cost of borrowing?
Canadalend.com, Your Cash-Out Refinancing Experts
The best way to find out whether cash-out refinancing is for you is to contact the independent, licensed agents at Canadalend.com . Our experienced mortgage experts will answer any questions you have and help you determine whether cash-out refinancing fits into your long-term financial needs.
To set up a free consultation, contact Canadalend.com today! Alternatively, you can apply online and one of our private mortgage specialists will help you set up an appointment at your earliest convenience to discuss your cash-out refinancing options.