A cash out refinance is making use of the lendable equity you have in the property and borrowing this money by adding it to a new first mortgage loan.
It’s important to understand the difference between “Owners Equity” and “Lendable Equity”. Owner’s Equity is the difference between the market value of your home minus the amount of money you owe on the property. For instance, if you home is worth $250,000 and you owe $200,000, the amount of owner’s equity is $50,000. Lendable Equity typically is calculated by taking 80% of the market value of your home and then subtracting what you owe. In the above example, 80% of $250,000 is $200,000; therefore, you have no real “lendable equity” to borrower.
There are a few government loan programs such as FHA and VA that allow you to borrower higher than 80% of your homes value, call us to today to see what you qualify for.
Many homeowners take cash out to make home improvements or pay off their outstanding debts; thereby reducing all of their monthly payments into 1 single payment. For many, this could improve your cash flow monthly, freeing up more disposable income for other expenses.
Try our calculator to see if you have enough equity to reach your mortgage goals today!