To help you narrow it down, let’s explore the types of mortgage refinances, as well as some financial alternatives.

5 Types of Mortgage Refinance Options and Alternatives

• Rate and term refinance
• Cash-out refinance
• Home equity line of credit (HELOC)
• Sell your home and downsize
• Turn your home into an investment property

Rate and term refinance

When most people think of refinancing a loan, they think of a rate and term refinance. This is the most traditional route, and for good reason. As the name implies, a rate and term refinance allows you to get a new rate and/or term on your mortgage. You may also be able to refinance to a different loan type that better meets your needs. 

For example, many homeowners start out with an FHA loan because it can be easier to qualify for as a first-time homebuyer. As they build home equity and grow their credit score, they may want to refinance to a Conventional mortgage so that they can drop monthly mortgage insurance premiums.

When is it a good idea?

Rate and term refinances are a great choice if you want to pay off your mortgage faster or take advantage of lower interest rates. 

Cash-out refinance

A cash-out refinance is when a borrower refinances their mortgage for more than the amount they currently owe and receives the difference in cash. They allow you to lock in a new fixed rate for the life of the loan and get predictable payments that make budgeting simple. Plus, all fees associated with the cost to borrow are paid upfront—no surprise fees down the road.

When is it a good idea?

If your goal is flexible funds, consolidating debt*, or financing home upgrades, a cash-out refi could be the right fit for you. Just keep in mind that unlike a rate and term refi, your monthly payment will likely go up, not down.

*Using your home equity to pay off debts or make other purchases does not eliminate the debt or the cost of the purchases, but rather increases the loan amount of your mortgage to be paid according to your new mortgage terms.

Home equity line of credit (HELOC)

A home equity line of credit (HELOC) is a refinance option that allows you to borrow against your home equity and use that to pay for miscellaneous expenses. It’s unique in the sense that the cash may be advanced to the borrower via a line of credit—like a credit card—rather than in a lump sum. You may have heard HELOCs more commonly referred to as second mortgages.

When is it a good idea?

Cash-out refis and HELOCS are similar. But, if your goal in tapping into home equity is for more flexible finances in general (rather than for a specific project like renovations) a HELOC might be a better fit.

Sell your home and downsize

Refinancing isn’t the only way to meet your homeownership goals. If your goal is to get cash from your home equity, selling your home might also be a viable option. In fact, you may even get more money back from selling your home than you would from refinancing. A smaller home may come with a smaller monthly mortgage payment, leaving you with more money in your pocket to pay for other expenses.

When is it a good idea?

This option could be right for you if you’re ready to downsize and current rates are more optimal than when you bought your current home. 

Pro Tip: For borrowers age 62 or older, a reverse mortgage is a way to leverage the home equity of your current home to reduce the cost of purchasing a new home.

Turn your home into an investment property

If you’re cash-strapped, flipping your home into an investment property might pay off more than refinancing. You could rent out a room, a floor, or the whole place if you’re away often. This option means you can keep living in your home, continue with your current mortgage terms, and make additional income at the same time. Renting out your home isn’t for everyone, though. And in some cases, using your home as an investment property may not be permitted by your existing mortgage, local government, or homeowners association.

When is it a good idea?

If you don’t mind people in your space, aren’t looking for new mortgage terms, and want to increase your cash flow, renting out your home could be the right choice for you.

Are there any other mortgage refinance options I should consider?

There’s no single right answer when it comes to refinancing or using your home to access more flexible finances. The right choice for you depends not just on your goals, but also on the current market rates. Whether you decide to keep your current terms, refinance, or take a different route with your home loan altogether, don’t rush a decision just because it seems like the next milestone you should reach. At the end of the day, homeownership happens at your own pace.

The right mortgage refinance type for you depends not just on your financial goals, but also on the current market rates.

The post The Best Mortgage Refinance Options and Alternatives appeared first on Cardinal Financial.

So, is it better to get a HELOC or refinance your mortgage? Let’s break it down.

What is a HELOC?

To understand whether it’s better to get a HELOC or refinance your mortgage, it’s important to understand just what a HELOC is.

• A HELOC, or a home equity line of credit, is a loan in which the lender agrees to lend a maximum amount within an agreed period, where the collateral is the equity in your house. Think of it like a credit card that’s connected to your home equity rather than your bank account.
• A HELOC is often referred to as a lien on your home, or a second mortgage, because it’s another loan in addition to your first mortgage.
• HELOCs have their merits and are typically considered a secure form of debt, but you’ll see there can be a number of drawbacks to this type of financing depending on your circumstances.

HELOCs: The Drawbacks

So, if a HELOC is just a loan that lets you use your home equity, what could be the potential drawbacks? Well, for starters:

• Getting a HELOC means adding another monthly payment to what may already be a tight budget.
• HELOCs come with adjustable rates, which means payments will fluctuate—sometimes each month. This can make budgeting more challenging and put you at the mercy of the market market.
• You may have to pay different fees throughout the course of a HELOC, like an annual fee or inactivity fee.
• You’re required to pay interest on the money you withdraw. And although HELOCs offer the option of interest-only payments for a period of time, you risk making payments for longer than you need to.
• The interest you pay on HELOCs is only tax deductible* if it’s used to build on or improve the home that secures the loan.
• HELOC lenders only allow you to withdraw money during a predetermined “draw period.” Also, they typically enforce a minimum draw requirement. That means you have to take out the minimum required amount even if it’s more than what you need at the time.
• Since a HELOC is a loan secured by your home, if you’re unable to make payments on your HELOC, you risk losing your home.

While there may be some benefits to HELOCs, the risks can be high—even for lenders. That’s why HELOC lenders are pulling back on offering this type of financing.

So, with fewer lenders offering HELOCs, how do you get cash to renovate your home in the current market?

*This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before making the decision to buy or refinance a home.

HELOC vs. Cash-Out Refinance

Cash-out refinance to the rescue. Here’s what it all boils down to: Why get credit when you can get cash? After all, it’s your hard-earned home equity on the line. That’s why cash-out refis can be a smart solution for homeowners who want to leverage their home equity. Take a look at the benefits.

• With cash-out refinance, you refinance a your mortgage for more than what you currently owe and pocket the difference in cash. It’s one monthly payment—no separate loan!
• A fixed-rate equals predictable payments, making budgeting easier and less stressful.
• All fees for a cash-out refi are collected up front, and interest rates are typically lower than that of HELOCs.
• No draw periods, no minimum draw requirement, and no extra interest-only payments. The only caveat is lenders limit how much cash you can take out to keep you from tapping into 100% of your home equity.

So, is it better to get a HELOC or refinance?

As in all things mortgage, the right choice depends on your goals. Overall, a cash-out refinance tends to be a less risky (and more widely available) way to leverage your equity than a HELOC. Keep in mind that a cash-out refi typically means you’ll have a higher monthly mortgage payment. When it comes to financing home renovations, a cash-out refinance can help you cover those upfront costs like materials and labor all at once. With a HELOC, the limited amount you can draw from your line of credit at a time might not be conducive to paying for home projects.

The bottom line

Figure out your financial goals before you decide if it’s better to get a HELOC or refinance. Luckily, our loan originators are here to help you do just that.

Using your home equity to pay off debts or make other purchases does not eliminate the debt or the cost of the purchases, but rather increases the loan amount of your mortgage to be paid according to your new mortgage terms.

Is it better to get a HELOC or refinance? While there may be some benefits to HELOCs, the risks can be high—even for lenders. A cash-out refi tends to be easier to qualify for.

The post Is It Better to Get a HELOC or Refinance Your Mortgage? appeared first on Cardinal Financial.

Should I refinance my mortgage? Top 5 reasons to refi

• Lower monthly payments
• Consolidate debt
• Get cash on hand
• Pay off your mortgage faster
• Gain stability

Different types of refinances can help you reach these goals, and some may be better than others for what you have in mind. To understand what’s right for you, let’s break down each benefit of refinancing your mortgage.

1. Lower monthly payments

A lower monthly payment may be the biggest benefit of refinancing a mortgage, but it only works if your new mortgage rate is lower than your original rate. Otherwise, your payment could go up. If you’re interested in refinancing, be sure to keep an eye on the most current rates. Even a small difference in percentages can have a sizable impact on your monthly payment. In addition to decreasing your monthly payment amount, reducing your interest rate can help you save money in the long term and build equity in your home faster.

If lowering your monthly payment is your top priority, a rate-and-term refi is likely the best fit.

2. Consolidate debt

Your debt situation is one of the main factors to consider when refinancing a mortgage. If you have debt in multiple areas, refinancing could help you consolidate it.* Using this method, you can replace multiple loans with one loan, leaving you with one convenient monthly payment. If you’re going to have debt, you might as well make it as simple as possible to deal with, right? The key here is not to accrue new debt once the refinancing has consolidated your old debt.

If debt consolidation is your goal, a cash-out refinance may be your best bet.

*Using your home equity to pay off debts or make other purchases does not eliminate the debt or the cost of the purchases, but rather increases the loan amount of your mortgage to be paid according to your new mortgage terms.

3. Get cash on hand

Want access to more flexible funds? A cash-out refinance can help. This type of refinance allows you to tap into your home’s equity and turn it into cash. Borrowers who refinance often use this money for remodeling or landscaping projects. How does it work? Refinance your existing mortgage into a new one for a larger amount and pocket the difference (minus closing costs). But be advised—lenders usually limit the loan amount of this type of refinance to 80 percent of your home’s equity.

4. Pay off your mortgage faster

If you plan on staying in your current home for a long period of time, it may be a good idea to refinance your mortgage to obtain a shorter term. For example, you may want to refinance your 30-year loan into a 15-year loan. Although your monthly payments will increase, you’ll save money on your overall interest payments and own your home, free of mortgage debt, in half the time. 

When paying off your loan sooner is the goal, a rate-and-term refi is usually the right move.

Pro Tip: Use our refinance calculator to see how much a refinance could save you.

5. Gain stability

Most people don’t like surprises when it comes to money. If you’re one of those people who like to know what’s coming ahead of time, refinancing your mortgage could be a perfect fix. One of the pros of refinancing is it can be a great solution for borrowers who are struggling with financial stability. If you started with an adjustable-rate loan, refinancing into a fixed-rate loan can help you make steady payments—especially if you are concerned with inflation and the resulting possibility of higher monthly payments.

Are there any other reasons I should refinance my mortgage?

Everyone’s situation is unique, so your reasons to refi may be different than what we’ve discussed here. One benefit of refinancing your mortgage that sometimes gets overlooked is financing home upgrades. Whether you want to use the cash from a cash-out refinance for this or refinance to a renovation home loan, your mortgage can do more for you than you might think. Reach out to a loan originator anytime to explore your options.

Lower monthly payments are just one of the many great reasons to refinance your mortgage.

The post Should I Refinance My Mortgage? 5 Reasons to Say “Yes” appeared first on Cardinal Financial.

If you’re like most Americans, there’s no bigger purchase you’ll make in your lifetime than buying a home. A home is an investment, and there’s a return on that investment in the form of equity. Yet many homeowners won’t be able to access that equity unless and until they sell their home. So what if you don’t want to sell your home? That’s your equity—shouldn’t you be able to use it?

Since selling your house isn’t a viable solution for everyone, lenders have come up with ways to help homeowners access their home equity so that they can pay for all kinds of things: home renovations, investing in real estate, vacations, car and student loans, and even credit card debt. Your home equity is a precious resource. It’s a wonderful thing to have, and when you find a mortgage lender that can help you tap into it and use at your discretion, it can open up a world of possibilities that has been stored up for the years you’ve been owning your home.

But you know what they say: with great power comes great responsibility. And home equity is not only a precious resource, it’s a powerful resource. So while tapping into your hard-earned home equity sounds like a great way to fund your plans and dreams, it should be handled with care.

There are some methods to using your home equity that are better than others. Of course, this depends on your particular needs. Ask yourself what’s your purpose for using your equity and you’ll be off to a great start. Because without a clear, defined purpose for the funds, it can be tempting to blow cash like that on petty expenses.

Learning the Hard Way

Homeowners who tapped into their home equity (some as much as 100% of their home value) during the housing bubble learned their lesson the hard way. Without limitations on how much they could access, and without giving careful thought as to what they wanted to use it for, many homeowners found themselves upside-down on their mortgages when the bubble burst and home values plummeted.

Thankfully, there are limitations in place to keep such disaster from happening again. To help you avoid the pitfalls and decide the best way to access your home equity, we’re going to look at two different methods: home equity line of credit (HELOC) and cash-out refinance.

Your home equity is not only a precious resource, it’s a powerful resource.

HELOC 101

A HELOC is a type of loan that allows you to borrow against your home equity and, like a revolving line of credit, you can use that cash how you want as long as you pay it back. (Imagine it like a credit card that’s connected to your home equity rather than your bank account.) A HELOC is another loan in addition to your mortgage, meaning you’d have another monthly payment.

Even though many homeowners benefit from this kind of loan, HELOCs have a number of disadvantages. While their closing costs may be lower than that of other loans, you may face several different types of fees imposed upon you throughout its course, such as an annual fee or an inactivity fee. HELOCs also tend to come with an adjustable interest rate, which can be problematic for a few reasons: no fixed payments, budgeting can be more difficult, and the rate fluctuates with the market (and we know the market can be unpredictable).

HELOCs offer the option of interest-only payments for a period of time. But when you’re not required to pay down the principal, you run the risk of making payments for a lot longer than you need to. Speaking of interest, the good news with HELOCs is that the interest paid may be tax deductible. However, since the tax bill that passed in 2017, borrowers can only deduct the interest on a HELOC if they used the money to build on or improve the home that secures the loan.

Since the tax bill that passed in 2017, borrowers can only deduct the interest on a HELOC if they used the money to build on or improve the home that secures the loan.

Another drawback? Draw periods. Lenders allow only a specific time period where the borrower can access the money, and they usually enforce a minimum draw requirement. You have to take out their minimum required amount even if it’s more than what you need at the time.

Here’s Where the Going Gets Tough

A HELOC is a loan secured by your home. If you’re unable to make payments on your HELOC, you could lose your home. This is one of the many sticky situations some homeowners found themselves in when the housing bubble burst. By essentially using cheaper debt to pay off more expensive debt, they were funding lifestyles they couldn’t afford.

Living outside your means for too long tends to end in disaster. Putting your home on the line makes it even worse. Thus, HELOCs probably aren’t the most stable choice for homeowners who want to spend their home equity. Good thing Cardinal Financial offers a different solution: cash-out refinances.

Living outside your means for too long tends to end in disaster. Putting your home on the line makes it even worse.

Cash-out Refinance Basics

A cash-out refinance is when a borrower refinances their mortgage for more than the amount they currently owe and receives the difference in cash. Put another way, it allows you to borrow against your home equity and spend the proceeds like you would cash.

Like a rate/term refinance, a cash-out refinance exchanges your mortgage for a new one with new terms. The added bonus is that it gives you cash on hand. Unlike a HELOC, a cash-out refinance gives you one monthly payment and a fixed amount of money to be used for a specific purpose.

Lenders will limit how much cash you can take out, keeping you from tapping into 100% of your home equity. It’s like putting guardrails around your freedom. And we all know guardrails have been known to save lives.

A cash-out refinance allows you to borrow against your home equity and spend the proceeds like you would cash.

What Makes Them So Great

Cash-out refinances can be a great option for borrowers who want to refinance their mortgage and get cash from their equity at the same time. You can lock in a low, fixed rate for the life of the loan, rather than one that’s variable. This gives you fixed, predictable payments that make budgeting simple. You pay any fees associated with the cost to borrow up front, like when you closed on your home purchase. This ensures there are no surprises down the road. Sure, you can get a HELOC and shop around and compare other lenders’ fees. But have you thought about doing a cash-out refi with Cardinal Financial?

Getting a cash-out refinance should feel a lot like when you first purchased your home. The processes are fairly similar. You have to meet a lot of the same requirements, like credit score, income and asset verification, and debt-to-income ratio. And, if you’re already a Cardinal Financial customer, it’s worth it to stay a Cardinal Financial customer. Since you’re already on file, we’d have to update your information, but the verification process should be much quicker.

Let’s Get Started

If you want to explore your options and find out how much home equity you could tap into, we can help.

This blog post is intended for educational purposes only and is not to be taken as advice. You should consult your financial advisor, legal counsel, and/or tax adviser before you make any financial decisions toward purchasing a home or applying for any kind of mortgage.

Did we convince you to do a cash-out refi? Get a free quote now and let’s get started.

The post HELOC vs. Cash-Out Refinance: Do You Know the Difference? appeared first on Cardinal Financial.

Homeowners: Close your eyes and picture your house. Got it? OK, now imagine it again, this time as a giant piggy bank with a roof, a chimney, a front door—the works. What if we told you that this isn’t just your imagination, it’s a metaphorical possibility: You could transform your home equity into cash with a cash-out refinance. Are you curious? Read on.

What is a cash-out refinance?

Refinancing is the process of replacing your original home loan with a new one, that may include a new interest rate and loan term. Refinancing can help you consolidate your debt, gain financial stability, oftentimes lower your interest rate, potentially pay off your mortgage sooner, and even get cash out. If those are benefits that catch your attention, stick with us here because it’s about to get interesting.

A cash-out refinance happens when the borrower refinances for more than the amount owed and pockets the difference. This allows you to tap into your home’s equity and turn it into hard cash. Now we’re talking.

What is equity?

If equity is one of those financial terms that you’ve heard before but don’t quite understand, allow us to define it for you: Home equity is the value of a house or property that represents the current market value of the house against its remaining mortgage payments (not including interest). This equity would increase over time if the market value of the property appreciates and as mortgage payments continue to be made.

Let’s break it down even more. Seven years ago, you bought your house for $100,000 and now it’s worth $200,000. You could refinance the house and take cash out for it now that it’s worth more than it was seven years ago.

Even though we’re talking about home equity, don’t confuse a cash-out refinance with a home equity loan or a home equity line of credit (HELOC). These seemingly overlapping terms are actually quite different. A home equity loan or line of credit is its own lien on the property (this would be in addition to your current mortgage if you have one already. Neither of these replaces or changes the terms of your current home mortgage). Conversely, a cash-out refinance is a loan that would replace the terms on your current mortgage. All of these options give you a chance to consider taking advantage of potentially better loan terms with the additional equity that has been accumulated.

What are the benefits?

In the midst of this giving season, debt consolidation sounds pretty attractive—and it’s a major benefit to cash-out refinancing that entices many homeowners. Take advantage of other benefits to this kind of refinance and make practical improvements to your home, like installing a new furnace, replacing a broken dishwasher, or fixing damaged parts of your roof.

If you’re looking to make your home a little more visually appealing, use your cash-out refi to remodel your master bathroom or get those butcher block countertops that are so popular right now. If you wait until the spring to do a cash-out refi, you could pay to have those unsightly shrubs removed from your front lawn or start building that dreamy pergola you’ve always wanted.

You can use the cash from your cash-out refinance any way you want, but many refinancers use this money for home improvement projects like landscaping or remodeling.

What’s the catch?

While cash-out refinancing may sound like music to your ears, we can’t call it a perfect solution. Be advised that lenders usually limit the amount of equity that you can take out of your home. Give us a call to find out if you should take advantage of a cash-out refinance.

The post What You Need to Know About Cash-Out Refinancing appeared first on Cardinal Financial.