You have probably heard about refinancing, and how it works. What you might not know is that you can do this to get some extra cash to make home improvements. It is a better option than getting a personal loan because it will not have as high of an interest rate. It is also a better option than using your savings account to pay for it. You truly never know when your nest egg will be needed, so make sure that you always keep a savings of at least 6 months of your bills.
So let us start from there and discuss how it works. It is actually a straightforward process that you can do at any time. Doing it whenever it suits you is not the best way to approach it, though. You need to do some math first. You will need to know if you have enough equity built up to get enough left-over cash after you pay off your existing loan.
You may be really confused now, but before we continue on we need to discuss equity. This is the amount left over when you take the current value of your house and subtract the amount that you have left on the loan. If your loan is higher than the value of your house, then you will definitely want to wait. If you have been paying on your loan for over four years you should be good but do the math first.
If you do have a decent amount of equity built up you can apply for a cash-out refinance mortgage loan. This is a loan that will give you money up to the current value of your home. Your current loan will have to be paid off, then you can use what is left over to complete your renovations or remodels. You would think that the amount of money that you must use would match the equity, but you must remember that you will be charged various fees throughout the refinancing process.
That brings up something else that needs to be discussed. You need to go to an online comparison site to find the best refinance home loan that offers the lowest rates. They will do all the leg work for you. All you will have to do is sort through the options and pick some of the top contenders, then find the best one for your specific situation.
Another aspect of a refinance mortgage is that some lenders will require that you keep at least 20% of the houses value in equity. Some may have a higher amount that they want, and others may have less. This is a stipulation that they put on to secure their investment, meaning the money that they loan to you. The market fluctuates up and down so the bank needs to make sure that they can get a return on their investment. One that does not put them in the red.
When you do a refinance loan you may end up paying more in interest than if you would have if you left it alone. You need to check and see if the interest rates can be locked into place. They are currently at an all time low so it would be a great time to do it. The lender will more than likely charge you a fee for this option, if they even have it, but it is worth the upfront expense because the market will continue to increase, which could potentially leave you in a pickle.
One of the biggest advantages to paying for your remodel through a refinance mortgage loan is that it will allow you to keep your savings account in place. We will not go into this in depth again because it was covered above, but this is a critical point to discuss. You may even end up having some cash left that can be added to your “rainy day fund.”
The one thing that most people never even consider is that once your remodels are done the equity in your house will go up. Hopefully, anyway. You can bet that if you are adding floor space to your current home, putting in a pool, or remodeling the kitchen or bathroom, that the value of the home will go up, which in theory will improve your equity. The only way this works though would be if you had an inspection before, and after, to compare the values.
With that being said we will close this brief discussion out with one more little tidbit. Before you get a refinance mortgage loan you may have to get an inspection done. Have your house ready and in tip-top shape before you start applying for loans, that way if it is a go, you are ready to jump in and get it done.