What Is a Cash Out Refinance and How Can It Help You Make Home Upgrades?

Your home might be the key to finally tackling those projects you have been dreaming about. A cash out refinance lets you take money out of your home’s equity to pay for things like a kitchen remodel, new roof, or energy efficient upgrades.

What is a cash out refinance?

A cash out refinance replaces your existing mortgage with a new one that is larger than what you currently owe. The difference between the two amounts is paid to you in cash. You can then use that money however you choose, including upgrading your home.

Why use your equity for home improvements?

Using equity to invest back into your home often makes more sense than putting large expenses on a credit card or personal loan. Interest rates on mortgages tend to be lower, and the improvements can increase the value of your property.

What are some popular uses?

• Kitchen and bathroom remodels
  
• Roof replacement
  
• Solar panels and energy efficiency upgrades
  
• Adding a room or building an accessory dwelling unit
  
• Landscaping or outdoor living space
  

What are the pros?

• Lower interest rates than most personal loans
  
• Potential increase in home value
  
• Possible tax deductions (check with a tax advisor)
  
• One fixed monthly payment
  

What to watch out for

This is still a loan, and your home is the collateral. You want to make sure the improvements are worth the cost and that you can comfortably afford the new mortgage.

Is a cash out refinance the right move?

If you have equity and a clear plan for how to use the funds, this can be a smart way to finance upgrades that improve your lifestyle and your home’s value. A good lender can walk you through what you qualify for and what your new payment might look like.

Read also: Should You Choose a 15 Year or 30 Year Mortgage?