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CASH-OUT Refinance Mortgages

Buying a home is probably one of the biggest investments you’ll ever make, and you likely want to do everything you can to make sure your home is as comfortable and up-to-date as possible. But it can be tough to build up the necessary savings to complete home renovations and repairs.

A Utah cash-out refinance may be your answer. It can help you accomplish your home improvement goals so you don’t have to rely on credit cards, a personal loan, or a second mortgage. A cash-out refinance can also help you use the money you’ve already paid into your mortgage to do things like cover repair bills, consolidate debt, or even eliminate your outstanding student loans.


A Cash-Out Refinance Can Help You Meet Your Goals

For most Americans, their home is their largest source of wealth and principal investment. However, we typically invest in our home and make a monthly payment in order to keep the roof over our head without actually considering other ways we can make the value of our home work for us.

Let's explore the use of the cash-out refinance as a financial tool. In the paragraphs ahead, we’ll discuss using a cash-out refinance to build up your emergency savings, invest in something like a retirement or college fund, or use it to invest in stocks or even other real estate.

Home Improvements

Unlike most home improvement loans, a cash-out refinance allows you to use the money you get however you choose. However, keep in mind that this is money that you’ve earned over many months and years of making payments on your home, and you should use it wisely. Therefore, it may be worth it to look at what types of home improvements and renovations are most likely to increase your home’s value.

If your home’s main systems or components are in need of an update, take care of those first before deciding on whether your kitchen would benefit from a remodel. If you end up selling your home down the road, upgrades to its major components can be highly attractive to potential buyers. Not only that, but certain improvements – such as replacing the roof or HVAC systems – may get you discounts on your homeowners insurance premium.

Debt Consolidation

Debt consolidation rolls multiple debts, typically high-interest debt such as credit card bills, into your mortgage loan. Debt consolidation might be a good idea for you if you can lower the interest rate on high interest rate loans. That will help you reduce your total debt and reorganize it so you have one, more managable payment.

If you’re dealing with a manageable amount of debt and just want to reorganize multiple bills with different interest rates, payments and due dates, debt consolidation is a sound approach you can tackle on your own.

Emergency Fund

As far as meeting day-to-day expenses people are often OK as long as they can work and the paychecks keep coming in. However, if the furnace goes out or there’s an unexpected medical emergency, maybe not so much.

According to a 2018 employee financial wellness survey from PwC, 41% of baby boomers, 48% of millennials and 51% of Gen Xers believe they don’t have enough emergency savings to cover unexpected expenses. This concern was shared by 52% of women and 42% of men.

Depending on where you get your numbers, the problem may actually be more acute. According to a Bankrate piece from 2017, only four in 10 people would rely on savings in an emergency. The alternative would be to take out loans or rely on credit cards with high interest charges, but doing so in a stressful situation and can put you further behind.

Experts recommend having three to six months of daily living expenses available if you had an emergency and couldn’t work for a period of time. If you’re financially able, you can put aside something each month, building up savings over time. However, that takes time and you might already be putting money toward other necessities and future goals. Your home could be a major source of untapped capital that you can use to build your financial cushion, and you can do that through a cash-out refinance.

Building Retirement Funds

Retirement is another major concern. According to the PwC study, 43% of baby boomers have $100,000 or less saved for retirement. Moreover, 27% of employees aren’t saving for retirement at all. Finally, 42% of employees are retiring later than they previously planned.

Top retirement concerns include running out of money, health issues, and health care costs among all age groups. Among baby boomers, the group who will be retiring next, only 45% of them even know how much they’ll need in retirement.

As of 2022, the IRS allows you to contribute up to $20,500 per year to your 401(k). If you’re over 50, you’re allowed to contribute an addition amount of up to $6,500 per year if your plan allows for catch-up contributions. The exact limit for these contributions is based on the type of retirement plan you have. If you’re unsure, refer to your documentation or check with your plan administrator.

If you’re behind in building retirement funds, taking cash-out of your home equity could be an excellent way to shore up your nest egg. It would also happen faster than if you were trying to figure out where to cut money out of a tight budget.

College Fund

It’s no secret that the cost of college continues to go up year after year. Yet for many fields, a college degree is considered a prerequisite for getting your foot in the door. Many people may feel like they want to help their children or grandchildren bear the burden of a college education.

If you’re looking to give a boost to a college fund, one great way to do it is to take cash out of your home because it’s your most valuable asset. Taking out a little bit of equity can mean an infusion of thousands of dollars in your investment in someone’s future.

Making Investments

The stock market certainly has its ups and downs, but if you invest in a broad range of stocks over time – an index fund, for example – research has shown you can make a return of about 7% after inflation. This is based on the assumption that you’re going to buy and hold on to the stock for a long time before selling. People who make trades on a regular basis are subject to more day-to-day volatility in the market and you can also have your investment eaten into by trading fees.

With historically low interest rates for a 30-year fixed mortgage, you can find yourself making more money in the stock market if you take cash-out and make some investments, as opposed to just putting money in a savings account that makes practically nothing.

The stock market is just one example. If you get in the right fund, there is the potential to see a better return. If you’re unsure about any particular investment strategy, consult a financial advisor.

Investing in Real Estate

If you’re comfortable becoming a landlord, taking cash out to make a down payment on a rental property could represent a good opportunity to gain passive income.

When evaluating investment property opportunities, one of the important things to look at is capitalization rate. Capitalization rate, or cap rate, is a measure that looks at the percentage of the overall value of the property that you could collect each year in rent after factoring in expenses. For this, you need to know both the value of the property and what you could reasonably expect to charge for a similar property in the area. The higher the cap rate, the better.

In addition to the income from the rent itself, you also have the benefits that come from having a house in general. With each monthly payment you gain equity, and you can use that value to turn into cash for other things down the line. If the property gains value between the purchase and the sale, you also make money on the sale. Home values also typically outpace inflation, sometimes by several percentage points. Although price appreciation has been slowing down, market values have been consistently going up.

Moreover, a market that’s slowing down may actually be beneficial if you’re looking to buy an investment property. Everybody wants to try to get a deal.

The distinct advantage of taking a Utah cash-out refinance is that it can help considerably with the affordability of a down payment. The minimum down payment on a one-unit investment property with a median FICO® Score of 720 or higher is typically 20%. Lower down payment options may be available, ask one of Advanced Funding's loan advisors for more information. If you have a slightly lower credit score or would like to purchase a property with two to four units, you’ll need a larger down payment of up to 25%.

Additional information about a Utah cash-out refinance mortgage can be obtained by calling one of our licensed loan officers at 801-272-0600 .

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