Are you wondering what a hard money cash out refinance is? Today, we’ll talk about some of the most important things you may want to know about a cash out refinance, including its definition.
This is an easy and quick way for real estate investors to tap into their equity from an investment property for some cash. It’s then possible to utilize the cash for reinvestment elsewhere.
If you are wanting to refinance your home loan and benefit from some upfront cash, a cash out refinance can be the right move for you. However, as with any other financial decisions, it’s crucial to understand all aspects of your action before taking it. So, without further ado, let’s get right into it!
What is hard money cash out refinance?
First off, what exactly is meant by a hard money loan? It’s basically an asset-based loan where you use a property to secure the loan, and interest may be higher than the regular commercial loan. Some people may mistake this with commercial real estate refinance or investment property cash out refinance, but hard money can also refer to arrears on any existing mortgage.
A hard money cash out refinance essentially allows you to get cash upfront from an investment property in exchange for a longer term or higher monthly payment.
From using the cash to reinvest in other funds to paying off debts, there are many private lenders nowadays that offer this type of refinance for real estate investors.
Benefits of cash out refinance
Why should you consider a cash out refinance, and is it advantageous in any way for a real estate investor like yourself? Let’s now discuss some of the benefits you may enjoy from a hard money cash out refinance. Here are some of the most common ones:
Pay off other high-interest debts
Home loan is a debt, but the rates for mortgage are often much lower than other types of debts. For example, a credit card interest rate approximates at around 16%, which is quite a high number. It might make more sense to channel the money you can get from a cash out refinance into the debt.
Moreover, the advantage of paying off your credit card sooner rather than later is that you can save more on interest in the long run. This can be a great thing to do for many people, although it won’t hurt to talk to a financial adviser beforehand.
Improve credit score
Believe it or not, a cash out refinance may be what you need to improve bad credit. This is because paying off debt, especially those with a higher interest like credit card, can help you boost your credit history. When you pay off your debts, your credit utilization score will fall and thus improve you credit score.
Use cash for other financial goals
Exactly as its name suggests, a cash out refinance lets you get quite a huge lump sum in cash. This is especially true if you have a large proportion of equity on your property. What you want to use the money for depends entirely on your goals. Are you looking to consolidate some of your debts? Pay for college fees or further studies? Fund a huge renovation project? The possibilities are endless, and this type of refinance can be super worth it.
With that said, don’t forget to understand all the implications of a refinance before you do take out the cash. This will ensure that you’ve made all financial decisions fully aware of all the consequences and closing costs.
Like with any other type of refinance programs, hard money cash out refinance can give you financial benefits like lower rates and the ability to reduce your loan term. Simply choose the alternative that suits your finance more: do you want to save more on interest over time or have a lower monthly payment?
Summary of cash out refinance loan
To sum it up, a hard money cash out refinance can be a great choice for real estate investors. Not only does this refinance not require income documentation, but lenders usually approve applications within a short amount of time. An asset-based cash out refinance, as it is sometimes known as, is also ideal for various
investment properties. Whether that’s a standard single-family home or condos, to commercial and office spaces alike.
One thing to note is that you must make sure that you have the sufficient amount of equity in your home or property. Interest rate and fees for a hard money loan is also relatively high, so don’t forget to utilize the cash in the most strategic way you can. All in all, we can definitely recommend looking at hard money cash out refinance as a smart financial option. That’s it for now, and best of luck to you!