Refinancing at a longer repayment term may lower your mortgage payment, but may also increase the total interest paid over the life of the loan. Refinancing at a shorter repayment term may increase your mortgage payment, but may lower the total interest paid over the life of the loan. Contact us to discuss the option that best meets your needs.
Refinance to Get Cash
You could turn home equity into cash for your goals.
Take Advantage of Your Hard-Earned Equity
If you’ve built up equity in your home, and you’re considering a project or large expense, cash-out refinancing could give you the funds you need.
You'll be replacing your existing mortgage with a new mortgage that comes with a new interest rate and revised loan terms. If the current market interest rate is lower, or your credit score has improved, you may even be able to secure a better interest rate for your new mortgage, in addition to turning your home equity into funds.
In addition to the general benefits of refinancing, you can use the funds with zero restrictions.
What Can I Use My Cash-Out Refinance For?
You can use the funds for anything you need, with no restrictions.
Here are some common uses:
Things to Consider
What You Need to Qualify for Cash-Out Refinancing
Your home still serves as collateral for your new mortgage, so remember that failing to repay the loan under the new terms could still result in foreclosure.
You’ll need to ensure you meet the following requirements:
- Enough equity: We require that you maintain at least 20% in equity in your home in the new transaction, which equates to having an 80% Loan to Value Ratio.
- Closing costs: Closing costs can range between 3%-6% of the loan amount. Eligible clients may be able to roll these closing costs into the new refinanced mortgage loan amount and pay nothing out-of-pocket at closing.
- Credit score minimum: Eligible borrowers may be able to qualify with a minimum credit score of 620.
- Debt-to-Income maximum: We compare your total monthly debt payments to your monthly income, called a debt-to-income ratio, to make sure you can handle the new loan payments. Maximum allowable DTI for a cash-out refinance may range from 36%-45% depending on loan type, borrower qualification requirements and other loan characteristics.
- Home appraisal: As part of the Refinance process, you may also need to have a home appraisal completed to verify the value of your home.
FAQ
Answers to Your Most Common Cash-Out Refinance Questions
The primary benefit is access to a lump sum of funds that may be used to help achieve your financial goals.
There are some other benefits that could apply depending on your circumstances:
- Compared to other home lending options, you may get a lower interest rate.
- If the money is used to repair or improve your home, the interest may be tax-deductible. Consult with a tax advisor.
- If you're able to get a lower rate, you may be able to reduce your overall interest expense.
- By customizing your loan terms and/or getting a lower interest rate, you may be able to decrease your monthly payments, freeing up money in your budget.
- Eligible clients may be able to roll closing costs into the new refinanced mortgage loan amount and pay nothing out-of-pocket at closing.
Some risks include:
- The possibility of foreclosure on your home if the loan is not repaid. This is true of all secured loans that use your home as collateral.
- Your total mortgage debt balance will increase, which may extend the time it takes you to pay off your mortgage.
- If you borrow more than you need, you would pay unnecessary interest expenses.
- If interest rates have increased, your new mortgage loan may come with a higher interest rate. This may increase your overall interest expense and monthly payment.
Many lenders require that you maintain a minimum amount of equity in your home after refinancing, such as 20%, which equates to having an 80% Loan-To-Value Ratio. This means you may be able to borrow up to 80% of your home's appraised value.
For example, imagine your home is worth $500,000 and you owe $225,000. The total equity would be $275,000. If a lender loans up to 80% of the home’s value, your new mortgage could be as much as $400,000 ($500,000 x .8). After paying off the $225,000 balance on the current mortgage, you could potentially cash-out as much as $175,000 (minus closing costs).*
* This example is for illustrative purposes only.
A Cash-Out Refinance and a Home Equity Line of Credit (HELOC) both allow you to convert part of the value of your home into funds.
However, HELOC is an additional loan, whereas a Cash-Out Refinance replaces your primary mortgage. We now offer a HELoan product which is another option.
In general, a Cash-Out Refinance is a strong option when you know exactly how much you need to achieve your financial goals and/or can secure a lower interest rate and more favorable terms on your primary mortgage. On the other hand, a HELOC may be a better fit if you are not sure how much funds you need to achieve your financial goals and/or don't want to make any changes to your existing mortgage
No: Because a Cash-Out Refinance is considered a loan (which you are obligated to repay), the funds you receive as a part of this transaction are not considered taxable.
Additionally, if the funds are used to repair or improve your home, the interest may be tax-deductible.
Discuss your options with a tax professional before making decisions based on tax implications.
The Loan to Value (LTV) of your home is a percentage that represents how much of your home's value is currently financed.
To calculate the LTV, divide the balance due on your loan(s) by the current value of your home.
For example, if you have a mortgage loan balance of $200,000, and the current value of your home is $600,000, your LTV would be 33% ($200,000 divided by $600,000).
Now, if you add a second mortgage loan with a $40,000 balance to the example above, your LTV would be 40% ($240,000 divided by $600,000).
Remember, we require that you have at least 20% equity in your home, which equates to having an 80% Loan-to-Value (LTV) Ratio.
Good for you if you don’t have an immediate need for funds to achieve your financial goals, but want to improve the rate and/or terms of your existing mortgage.
Good for you if you know you need funds, but aren't sure how much you'll need or don't want to change the rate and/or terms of your existing mortgage.
- Confirm you have at least 20% equity built in your home.
- Confirm your credit score is at least 620.
- Confirm your Debt to Income (DTI) meets the maximum DTI requirements which may range from 36%-45%.
- Determine the amount of funds you need to achieve your financial goals.
- Gather the documents you’ll need – refer to our refinance application checklist for more information.
- Connect with a PNC Mortgage Professional or apply online to get started.
Want to Talk About Refinancing?
Talk through your situation with a mortgage specialist.
Debt Consolidation Information: The benefits of a Cash-Out Refinance for debt consolidation depend on your individual circumstances. Because a Cash-Out Refinance may have a longer term than some of the debt you may be consolidating, you may not realize a savings over the entire term of your new Cash-Out Refinance.
Important Notice to Servicemembers and Their Dependents. If you are currently eligible for benefits provided by Servicemembers Civil Relief Act (SCRA), refinancing current debt may not be beneficial.
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