How Does a VA Cash Out Refinance Work?
Ever wonder how does a VA cash-out refinance work? Well, your not alone, here at Low VA Rates we get a lot of questions about the VA cash out the loan and we are here to help.
The VA cash-out loan is a wonderful loan option for veteran homeowners that are looking for some extra cash. In a nutshell, it allows the borrower to tap into the equity of their home and get cash back at the time of refinancing.
The VA cash-out refi is an option worth looking into for many reasons. It’s a great refinance option to help pay off credit cards or other bills. Or maybe you would like to take out some money to do some home improvements. Whatever the reason there are many benefits of the cash-out refinance VA loan.
A Real Life Example
So how does a VA cash-out refinance work? Here’s an example of how this can work. We had a veteran whose home value was $200,000 and their mortgage balance was $160,000. They were curious about how they could tap into that remaining $40,000 (the difference between the home value and the mortgage balance).
Let’s take this example further and make a comparison of how this would work with a conventional route and the VA cash-out route.
Conventional v. VA Cash-Out
Credit Union Route
Let’s take a look at how this would work with a credit union. If you wanted to tap into that $40,000 with a credit union, they’re going to set you up with a quarterly adjustable home equity line of credit rate. This isn’t beneficial because it’s basically like having a big credit card.
Doing it this way puts you in revolving debt. So when you make your monthly payment, you might notice that your balance hasn’t gone down like you thought it would. That’s because of the way the interest is calculated. It’s hard to catch up on each payment and that’s why it’s revolving debt.
VA Cash-Out Route
Remember, the VA cash-out lets you go to 100% of your home value, and this is a veteran benefit only. So in the case of the VA cash-out, it’s a better way to tap into that $40,000 equity.
What could you do with that equity? Let’s just make an example. You could:
- Pay off a $10,000 Mastercard balance
- Pay off a $10,000 Visa balance
- Spend $20,000 on home improvements
The home improvements example is especially exciting. Think about it. As a veteran, you use that 100% cash-out refinance (keeping your home at full value) and you’re able to use that equity to make your home better. So that $20,000 you used for home improvements could potentially increase the value of your home.
Final Thoughts on the VA Cash-Out Refi
This is just one example of how the cash-out refinance could benefit you. The main takeaway is that you can use this to make your equity and your homework for you whether by restructuring debt or making some home improvements.
Here at Low VA Rates, one of the things we work hard at is taking care of those who served our country. We want to match our products with the things you want to accomplish by creating win-win situations.
If you’re curious about how it can work for you, go ahead and contact Low VA Rates. You can send us a chat, email us, or you can call one of our agents today.