In a lot of cases, your primary residence isn’t considered an asset until you pay it off completely. However, if you have positive equity in your house, then it is actually an asset. This is because you can utilize this positive equity to your advantage by using a cash-out refinance. There are many reasons why people choose to embark upon a cash-out refinance on their home, but not all of them are great reasons. A few of these not-so-great reasons have to do with using the money for vacations, shopping sprees or just extra spending money. These reasons can just propel you further into debt. So, I want to touch on the 3 best reasons to consider a cash-out refinance that can help propel you further on your positive asset journey instead.
1. Cash-Out Refinance for Home Renovations
The first thing a lot of us think about when considering a cash-out refinance is home renovations. I know it’s the first thing that pops into my head. This is because there are always things I want to do around my house to help increase the property value. But, I also want to do them for our own benefit to increase the comfort or utility of our home.
Therefore, home renovations can be a great use of funds from a cash-out refinance. Before you get too crazy with renovation ideas though, it might be wise to speak with a real estate agent. This is because they can help you determine what area’s you might get the best rate of return on before you start swinging away the hammer.
There are some areas that almost always get you a really good return on your money. Some of these most common home renovations include:
- Kitchen Renovation
- Upgrading Bathrooms (especially from half baths to full baths)
- Garage Doors
- Upgraded Siding
- New Windows
- Entry Door Replacement
Please note that not all renovations that fall into these categories will get you a good positive rate of return. It will all depend on what you currently have and what you are upgrading to. As well as the area you live in. After all, overbuilding for your area doesn’t usually get you what you want back out of the house. But, if you see your area beginning to climb, then it may be a good time to pull the trigger on renovations you have been wanting to do.
2. Paying Off Debt
Another really good use of a cash-out refinance is to pay off debt. Getting out of the hole can be exceedingly difficult for the majority of us. And, if you don’t own a home with positive equity to tap into, it can be even more difficult. But, this is one of the perks of being a homeowner. Sometimes, you have more funds at your disposal than those who choose to rent.
And if you find yourself in this position, then why not take advantage of it. Using the funds from a cash-out refinance can ultimately save you thousands. This is especially true if you happen to have a lot of high interest debt that needs to be paid off. If you have any debt that has a higher interest rate than what the interest for your refinance is, then you are already coming out ahead.
For example, let’s say you have medical debt that you put on a credit card (which happens more than I’d like to think!) with a 29.99% APR. But, you’re able to get a cash-out refinance against your house with a 3% APR. This means you are saving yourself approximately 27% in interest you would have been paying. Depending upon how large your debt is, that can be tremendous! And this is especially true right now since current mortgage rates are at an all time low.
3. Pay Off Cars
In similar fashion, paying off your cars may be a really good use of these extra funds. Of course, this will all depend upon your interest rate for your car loans. As well as how much longer you have before you have the cars paid off. But, for a lot of us, getting the cars paid off helps to free up some cash for monthly cash flow. And this can make budgeting so much easier and less stressful.
In a lot of cases, the extra amount you are paying for your mortgage with a cash-out refinance doesn’t come anywhere close to what you were spending on a car payment each month. So, the math usually works out pretty well here.
I know, for us, it’s been really nice to have the extra $500 – $600 a month in our pocket because we no longer have any car payments. That money can be used for other necessary items, or to help us bulk up our emergency fund. By having a larger emergency fund, we have a greater peace of mind. And that’s worth it to us.Using the funds from a cash-out refinance can ultimately save you thousands! Click To Tweet
Cash-Out Refinance Summary
Overall, there are many reasons why you might want to consider a cash-out refinance. Not all of them are great ideas, though. So, before you pull the trigger, make sure this refinance will benefit you monetarily. The last thing any of us wants is to create more financial strife. Therefore, a really good use of these extra funds are:
- Home Renovations
- Paying Off Debt
- Paying Off Cars
No matter which of these you choose to use the funds for, your future self will thank you.
What have you found the best uses of a cash-out refinance to be?