Four Ways to Leverage Home Equity
“Equity.” It’s a term you’ve heard before, especially if you’ve ever been in the market for a home, but is it one that you really know the meaning of, or how it affects you? Home equity is the difference between the amount you owe on your mortgage and the value of your home. This means, as you make payments on your mortgage to lower the amount you owe, you simultaneously build the amount you’ve earned in your home, or your equity. If the balance of your mortgage is valued at more than the value of your home, you have negative equity; however, if the balance of the mortgage is lower than the value of your home, it is positive equity and this positive equity can be converted into cash. 

Four Reasons to Consider a Cash-Out Refinance

The fact is, once approved, you can use a  cash-out refinance loan for anything. Still, it’s important to remember that, while it is a loan that pulls from the equity in your home, it is still a loan that you will have to repay. Keep this in mind before using funds from a cash-out refinance to splurge on “non-essential” items that you may not have much use for. It’s typically recommended that money from a cash-out refinance  be used for investments that can increase the value of your home or simplify your cash flow, and not for things like everyday expenses. 

Here are four ways to use funds from a cash-out refinance that can help put you in a better financial standing:

  • Home improvements
    Remodeling your home can often add value to the property. For instance, updating appliances to energy-efficient ones, or adding an additional bedroom. These upgrades can increase the value of your home (which you’ll appreciate if you ever end up selling), but be wary of “improvements” that may not add as much value as you originally thought. Work with your real estate agent and mortgage consultant to determine if your home renovation project will end up giving you enough bang for your buck.
  • Consolidating and paying down debt
    A cash-out refinance typically has lower interest rates than credit cards, so using these funds to pay off your credit card debt  can ultimately help you save money in the future.
  • Pay off student loans
    College tuition is expensive and student loans can take years to pay off. Leveraging the equity that you’ve built into your home to pay down federal or private student loan debt is a great strategy to consolidate and eliminate a common, yet heavy burden.
  • Cover the cost of a medical bill
    Instead of having to worry about defaulting on your medical expenses, you may be able to use the equity in your home to cover the cost. Dealing with a medical emergency is already stressful enough—you should not have to worry about where the money is going to come from.

One of the major benefits of owning a home is the ability to build your equity month after month, ensuring you have a safety net of funds should you ever need it. While the options of what you can use funds from a cash-out refinance for are relatively unlimited, it’s always a good idea to get input from a professional. 

At Penrith, we believe in sticking around for our clients long after closing on a loan. That means helping you manage your mortgage, and making it work for you to accomplish your financial goals.