Why Cash-Out Refi’s for Home Improvement Are Gaining Momentum

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January 5, 2016 | By RGR Marketing Blog

Should You Use a Cash-Out Refi to Finance Your Next Home Improvement Project?

Maybe your clients are considering making some improvements to increase their home’s potential sale price. Or perhaps they’re just interested in giving their home a few features that they’ve always wished it had.

Whatever the case may be, home improvements can be expensive, and unless they have plenty of money in the bank, the capital has to come from somewhere.

These days, many homeowners are choosing cash-out refinancing as a source of funding for home improvement projects. What are the benefits of cash-out refinancing? And while we’re on the subject, what are the potential pitfalls?

How a Cash-Out Refi Works

When a homeowner takes advantage of a cash-out refinance, they’re essentially replacing their existing first mortgage with a brand new first mortgage. This is in contrast to taking out a second mortgage via a home equity line of credit, or HELOC.

In the case of a HELOC, the mortgage interest rate and mortgage term remain the same, and the second mortgage is tacked on behind the existing one.

With a cash-out refi, the new mortgage pays off the old one. In essence, it’s a completely new mortgage with a new interest rate and term length.

Refinance at Low Interest Rates With a Cash-Out Mortgage

As you know, interest rates are currently at record lows. And as an industry insider, you’re all too aware that those low rates may soon change as the fed has taken recent action to raise rates. But for the time being, interest rates are as cheap as they’re likely to be for the foreseeable future.

If your clients choose to raise home improvement funds through a cash-out refinance, they may be able to lock in a much lower interest rate, especially if it’s been a while since they took out the original mortgage.

Cash-Out Refinance = Low Interest Cash

Some homeowners finance home improvement projects with home improvement loans, home equity loans or credit cards. As previously mentioned, mortgage interest rates are currently quite attractive, so it often makes sense to take advantage of this low-interest source of home-improvement capital.

Tax Advantages of the Cash-Out Refi

When your clients take advantage of a cash-out mortgage offering, the proceeds of the loan don’t count as taxable income. Not only that, but all of the interest paid on a cash-out refinance is fully tax deductible. You can’t say that for credit cards!

Potential Drawbacks of Using a Cash-Out Refi for Home Improvement

Tax deductible interest, low mortgage rates, and easy access to home improvement funds all sound great, but there’s always a catch.

For one thing, most cash-out mortgages have certain fees associated with them. These fees can amount to hundreds, or even thousands of dollars, and you’ll want to educate your customers about those fees before initiating the application process.

For another, a cash-out refinance will put borrowers back to square one on paying off their mortgages. Maybe not a big deal if they’re getting a much better rate and plan to stay in their homes indefinitely, but still worth considering.

Finally, there’s always the chance that home values could take a dive. If your clients find themselves underwater; they may end up regretting taking advantage of the cash-out refi.

Encourage Your Clients to Use Cash-Out Refinancing Wisely

Cash-out refinancing can be a wonderful tool when you need capital to improve your home, but it’s not a decision to enter into lightly. When your customers inquire about exercising this option, encourage them to plan how the proceeds will be spent carefully, to ensure a satisfactory long-term ROI.

[Photo via: Realtor]

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Should You Use a Cash-Out Refi to Finance Your Next Home Improvement Project?

How a Cash-Out Refi Works

Refinance at Low Interest Rates With a Cash-Out Mortgage

Cash-Out Refinance = Low Interest Cash

Tax Advantages of the Cash-Out Refi

Potential Drawbacks of Using a Cash-Out Refi for Home Improvement

Encourage Your Clients to Use Cash-Out Refinancing Wisely

Start making more
money today!

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Should You Use a Cash-Out Refi to Finance Your Next Home Improvement Project?

How a Cash-Out Refi Works

Refinance at Low Interest Rates With a Cash-Out Mortgage

Cash-Out Refinance = Low Interest Cash

Tax Advantages of the Cash-Out Refi

Potential Drawbacks of Using a Cash-Out Refi for Home Improvement

Encourage Your Clients to Use Cash-Out Refinancing Wisely

Start making more money today!

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