What Are the Valid Reasons to Do a Cash Out Refi?

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Using a cash-out refinance can be a simple way to get access to a relatively large amount of cash in a short period of time. A cash-out refinance involves borrowing against the full value of your house, paying off your existing mortgage and keeping the difference. This type of transaction is typically a good idea only for certain purposes.

House Repairs or Addition

One valid reason to use a cash-out refinance is to add on to your home or to update it with a remodel. When you borrow money through a cash-out refinance, you will be making payments on the loan for the next 15 or 30 years. This means that you should most likely use the money to pay for something that you can use during that entire amount of time. This can also add value to your home.

Buy Another Property

Another legitimate reason that you could use a cash-out refinance is to buy another property. For example, you could take out a new mortgage, get the cash from your equity and then use it to buy a rental property. If you have enough equity, you could potentially pay for the second property completely and then own it free and clear. When you use the money to buy another property, you can potentially create another source of income, and you are also purchasing something that retains value.

Medical Treatment

In some cases, you may be able to use the money from your home's equity to pay for some type of medical treatment. Sometimes, your health insurance will not pay for experimental medical treatments that could prolong your life or the life of a loved one. If you use a cash-out refinance, you can potentially pay for the treatment and have a more enjoyable life. Extending your life or the life of a family member can be worth making payments for the next several years.

Consolidating Debt

You can also use the equity in your home obtained through a cash-out refinance to consolidate your debt. With this approach, you take the cash that you receive and use it to pay off all of your debt accounts like credit cards and store accounts. When you do this, you can secure a single payment every month instead of worrying about making multiple payments. It can also allow you to deduct the amount of interest that you pay on your loan, which is not possible with other types of debt.

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