If you currently have a veteran home loan and you need cash or want to lower your payments, a VA cash-out refinance might be perfect for you. But before you decide, there are some things you will want to know about in advance. Cash and lower payments sound great, but you might be asking yourself, “where’s the catch?” Here we’ll go over the pros and cons of a veteran home loan cash-out refinance to help you decide if it’s the right decision for you.
Should You Cash-Out Refinance Your Veteran Home Loan?
Cash-out refinancing is a way for current or veteran military service members to tap into their home equity to get cash or refinance another mortgage into a VA loan to get a lower rate. But, it’s not right for everyone. Let’s go over some of the pros and cons:
Why Veterans Use Cash-Out Refinancing
Veterans choose to take advantage of a VA cash-out refinance for a few reasons — the most common being that they need access to cash. The cash comes out of their home equity. For example, if you have a mortgage for $400,000 and you’ve paid off $100,000, you may be able to get up to $100,000 in cash while simultaneously lowering your mortgage rate. However, you’re not required to take out the full amount. If you prefer, you could take out $10,000 to fund a small kitchen remodel, buy a car, pay for a vacation, or pay down high-interest debts.
One of the most common reasons to do a cash-out refinance is to fund a remodel, renovation, or repair project for your home. But there are many other possible benefits to cash-out refinancing your veteran home loan. If you have an FHA or traditional loan with mortgage insurance, for example, you can eliminate that extra monthly cost by refinancing it into a VA loan.
Reasons Not to Do a Cash-out Refinance
Cash-out refinancing is the right decision for many homeowners, but it isn’t the best option for everyone. You should only refinance your veteran home loan if you can benefit in some way from the new loan. Here are some things you may want to consider before you decide if refinancing is right for you.
You Might Increase Your Mortgage Rate
When you apply for your VA cash-out refinance, you’ll need to give your credit score. If your score is lower than when you first applied for your loan, there’s a decent chance that refinancing could increase your mortgage rate.
The Clock Will Restart on Your Mortgage
Cash-out refinancing restarts the clock on your mortgage and creates a new loan with new terms – likely 30 years. A longer payment term will mean extra interest costs. For that reason, you should only use a VA cash-out refinance for things that will improve your finances in the long run.
Assess Your Options and Decide
Now that you understand the pros and cons of doing a cash-out refinance on your veteran home loan, you should be equipped to make the right decision for you.
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