Home Equity loans aren’t the only game in town when it comes to paying for home renovation and remodeling projects. If you have equity built in your home, then a cash-out mortgage refinance is another great option for covering home renovation costs. Cash-out refinancing of your mortgage loan can give you the extra money you need for home improvements. With mortgage rates at all-time lows, a mortgage refinance might be a great solution for a home renovation.
A cash-out mortgage refinance will enable you to tap into the equity of your home, pay off your existing mortgage, and take some extra cash to cover your renovation needs. If you are considering a mortgage loan refi for home improvements, keep in mind you will need to pay for an appraisal and other fees and closing costs. You’ll want the rate savings to outweigh the fees. On the plus side, in addition to completing your home remodel, a lower rate may enable you to lower your monthly payment and save on interest in the process. If interest rates have fallen significantly since you took your existing mortgage loan, you may be surprised at the savings.
Refinance your mortgage and take some cash out for a home remodel
For a cash-out refinance, lenders will combine your initial mortgage balance and cash you request into a new loan. As we mentioned above, the only downside may be the closing costs. A cash-out mortgage refinance can help finance many of your home renovation dreams from an ultramodern kitchen to a new luxurious bathroom or even a home add-on. It’s a great alternative to high-interest credit cards or blowing your emergency savings fund. Your renovation costs will be rolled together with your mortgage into one easy affordable monthly payment.
Your lender will consider several things in addition to the equity you have built-in your home when you apply for a cash-out mortgage refinance. This includes your income and assets, your debts, and also your credit history. The equity will also need to justify the loan amount of cash you would like to receive. When you apply to refinance, your lender will require an appraisal of the property to determine the value. Different lenders will finance different loan to value ratios based on your equity. For example, Choice One Community Credit Union usually allows members to finance up to 95% LTV based on their credit history and repayment ability.
Tax consequences of cash-out refinancing
The cash you receive from a cash-out mortgage refinance is not considered income, but rather a loan. Depending on how you choose to spend the money, the interest you pay on your loan may be eligible for a tax deduction. For example, if the mortgage loan is for your primary residence and the cash is used towards home improvements that increase the value of your home, such as upgrading your heating or air conditioning system or adding on an extra bedroom, the mortgage interest should be tax-deductible*. Speak to a tax professional to see how the tax laws apply to you.
Applying for a cash-out mortgage refinance
A cash-out mortgage refinance can be a strategic way to pay for home renovations. You can simply refinance your existing mortgage for more than the current outstanding balance and then keep the difference between the old and new loans. With a cash-out refinance to help you pay for home renovation costs, you’ll be able to maintain a single mortgage payment rather than a mortgage payment and separate home improvement loan payment. If you score a lower interest rate than you a currently paying, your new monthly payment might not be any higher than your existing payment, in fact, depending on the rate reduction and the term you choose, it may even be a lower monthly payment.
If you’re still on the fence about a cash-out mortgage refinance for your home remodel needs, speak to a Choice One representative or take a look at Choice One Community Credit Union’s low mortgage loan rates. In addition to the low mortgage loan rates, Choice One has also eliminated its $500 origination fee. You can apply or get pre-approved easily online. If you have a good credit score and enough equity built in your home, this may be the right option for realizing your home improvement dreams.
*Check with your tax advisor. Mortgage tax-deductible interest eligibility depends on your specific tax situation.