Cash-Out Refi: A Great Alternative to a Home Improvement Loan - Quicken Loans Zing Blog

 

Home renovations and maintenance can get expensive. A cash-out refinance offers an option to pay for these projects that doesn’t involve getting a second mortgage or the typically higher interest rates of a personal loan.

If you’re considering a cash-out refinance to help pay for any home improvement projects you want to tackle, here’s what you need to know.

What Is a Cash-Out Refinance?

First, let’s go over what a cash-out refinance is.

A cash-out refi allows you to utilize the equity you have in your home to get a new, refinanced mortgage to replace your existing mortgage, while converting some of that equity into cash.

Essentially, you’re borrowing more than you currently owe on your loan and pocketing the difference. To do this, you have to already have equity in your home. Cash-out refinances are different from second mortgages – if you get a cash-out refi, that will be your primary mortgage.

For example, if you bought your home 10 years ago for $200,000 and have paid off $75,000 of the loan, you’d still owe $125,000. Now home prices are on the rise, and your home is now worth double. If you got a cash-out refinance for $250,000, you’d pay off the outstanding $125,000 balance and then take the remaining $125,000 for a remodel or renovations.

Why Pay for Renovations with a Refinance?

If you have a big cost you won’t be able to cover using your savings, a cash-out refinance allows you to tap into what is likely your most valuable asset – your home. Since home improvement projects can often be quite costly, a cash-out refi can make them affordable for you.

Other loans that utilize your home’s equity, such as home equity loans or home equity lines of credit (HELOCs) are usually second mortgages. A second mortgage is a mortgage you take out on top of your main mortgage. A cash-out refi isn’t a second loan, but instead replaces your main mortgage.

Because a cash-out refi is your primary loan, you’ll generally be able to get a better rate than you would with a home equity loan or HELOC.

This is also the case with a personal loan, which is another popular option for homeowners looking for ways to pay for home improvement projects. Personal loans will typically have higher rates than a cash-out refinance. You may also be able to get more cash with a cash-out refi than a personal loan, depending on your home’s worth and how much equity you hold.

The downside of getting a cash-out refi is that you may end up with a higher rate than what you’re currently paying. However, if current mortgage rates are lower than when you purchased your home, you may be able to snag a lower rate.

You may be able to build back that equity relatively quickly if the renovation you’re doing increases your home’s value. Plus, depending on what type of improvement project you do and how much your house sells for, you may be able to deduct the cost of the improvement from your taxes in the year you sell.

What Types of Renovations Can You Use a Cash-Out Refinance For?

When you receive your cash from your cash-out refi, you can use that money 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 diligently. Therefore, it may be worth it to look at what types of projects 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.

Are There Any Downsides?

As we all know, there’s no such thing as free money, and cash-out refinances – like every other type of loan – don’t come without downsides. Whether it’s worth it to get one is going to depend on your individual situation.

Before you decide on taking out any kind of loan, take some time to calculate the cost of the project you want completed. Call contractors and get estimates on the work that will need to be done. You want to know exactly how much it’s going to cost and where the money will go, so you know how much you need and don’t end up borrowing too much (or too little).

Figure out how much changing your mortgage would affect your finances. If your monthly payment goes up, will you be able to afford that? If your rate increases, are you OK with paying more over the life of the loan?

You should also know that with a cash-out refinance, you’ll have to pay closing costs.

If you’re interested in reviewing your options, you can check out our refinance calculator to see if a cash-out refinance makes sense for you. If you’re ready to begin the process, you can get started online or talk to one of our Home Loan Experts by calling (800) 785-4788. If you still have questions, let us know in the comments below.

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This Post Has 16 Comments

  1. We have a mortgage with Quicken and are pleased.
    We just had our central air conditioner unit serviced today. Unfortunately, the technician delivered some bad news. As the summer months approach we’ve been told that our central unit won’t function at this point. Is it possible to help us with financing the cost of the central air conditioning unit/installation?
    Thank you.
    Diane C. Evanson

    1. Hi Diane:

      We’re glad to hear you’re pleased with your experience with Quicken Loans. Bad break about the air conditioner.

      I want to give you a couple of options and you can decide which one makes the most sense for you. If you want to take cash out of your home by accessing your existing home equity through a refinance, we can help you get started online through Rocket Mortgage®. You can also feel free to call one of our Home Loan Experts at (888) 980-6716.

      If the closing costs on a refinance to make sense, one of the other options would be to go with a personal loan. Our friends at Rocket Loans® could help with that if you’re interested. Hope this helps!

  2. Hello,

    My wife and I bought our home 2 and a half years ago. We used QL. I am interested in learning more about the Cash Out loan. However I am a bit confused on the difference between QL and Rocket? When you contact me and we talk, maybe you can explain the differences.

    Sincerely,

    Michael Hoene Jr.

    1. Hi Michael:

      I like to explain Rocket Mortgage to people this way: It’s a self-service mortgage, but you have the option to get help at any time if you have questions or concerns. You provide us with income and asset information which can be sourced from a number of our available trusted partners. After that, you pull your own credit and we can give you refinance options to meet your goals in a matter of minutes if you choose. Of course, everyone works at their own pace. The goal of Rocket Mortgage is to remove the pain from the process by sourcing the necessary documentation electronically upfront. That way, you don’t have to go hunting around in six different places for the paperwork. If at any time you get stuck, you can get in contact with one of our Home Loan Experts by phone or online chat.

      If you’d like to get started with Rocket Mortgage, go ahead and get started. Otherwise, one of our Home Loan Experts will be happy to help you if you call (888) 728-4702.

      Thanks,
      Kevin Graham

  3. I would like to learn more about the cash out refinance. I’ve been a quicken customer for about 10 years, but i also experience identify theft, so it is a challenge to do anything. Is this more like a streamline loan?

    1. Hi Calvin:

      I’m sorry to hear about your identity theft. It could theoretically impact your mortgage depending on how the situation impacted your finances and credit. However, the theft itself wouldn’t affect the type of loan you could get. A streamline is not a cash-out. Cash out is a different process. We can definitely help you look into your options if you want to go ahead and fill out this form or call (888) 728-4702.

      Thanks,
      Kevin Graham

  4. I already have my mortgage through Quicken Loans and absolutely love it. I was wondering what other loans may be available for home improvement projects.

    1. Hi Roy:

      I’m glad to hear you’ve had a pleasant experience with us! We can definitely help you look into your options for a cash-out loan. If you want to get started online, you can check out Rocket Mortgage. Otherwise, feel free to give us a call at 800-251-9080.

      Thanks,
      Kevin Graham

  5. I have two homes on two acers they are paid for, one we let my daughter live in and the other we live in. I only need a small amount of cash or line of credit. I have $140k invested but am short on funds my wife and I would like to get 15k and pay it off in 5 years or less.
    I am on disablity but but only have the norn. household expences my crdit score is poor dew to med. bills. So do you think you can help me?

    1. Hi Johnnie:

      We don’t do loans in that small of an amount. However, I’m going to have someone reach out to go over all your options. You may be able to get a personal loan. If nothing else, we may be able to give you some advice.

      Thanks,
      Kevin Graham

  6. I would like to speak with someone about a home loan for home improvement, l have a home mortgage already with quickenload
    Thanks M Shelton

    1. Hi Marsha:

      We can definitely help you look in your options and see what works best for you. I’m going to have someone reach out. They’ll be in contact.

      Thanks,
      Kevin Graham

  7. The way you real- estate people throw out such pie in the sky numbers just frustrates and angers me. Home prices doubled in the last ten years? Who are you kidding? Where is this fictional place, I want to move there.

    1. Hi William:

      The intention is not to anger you. Although all housing markets are very local in nature in terms of pricing, the national trend is that prices are going up. Monthly data from multiple sources has bared that out from at least 2012. The intention is to educate people on home values so they take notice of their market and conditions in their area. For more information on the home values, you can check out this post with a home value index. Hopefully prices come back in your area soon.

      Thanks,
      Kevin Graham

  8. I have an older house. I want to rip the interior to the studs and redo everything. I wonder what something like that costs. LOL
    My wife tells me we’ll just buy another house. Probably a better idea.

    1. Hi David:

      It does sound like it might be cheaper to buy, but if you’re ready we can help in either case. I’m going to have someone reach out to you to gauge your interest.

      Thanks,
      Kevin Graham

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