A Smart Strategy for Cashing Out

The stable homeowner who has been in their home and steadily made mortgage payments for 7 or more years has probably built up home equity that gives them options in today’s uncertain world. These homeowners are reevaluating their overall financial picture, and many times are making the decision to leverage their home equity to meet current financial obligations and improve their overall financial picture.

There are 4 no-brainer situations when refinancing to put home equity to use to improve your financial picture can make sense:

1. Renovating Your Home

A home renovation can be seen as an re-investment in your house while at the same time improving your lifestyle. A “cash-out” refinance of your current mortgage may be the most cost-effective way to fund home improvement projects. Home equity or line-of-credit financing may also make sense in this situation. An evaluation needs to be made of total money needed, over what time frame, to determine how to most cost effectively leverage your home equity to pay for this type of project.

2. Paying Down High Interest Credit Card Debt

Restructuring and consolidating high interest loans and credit card payments and decreasing overall interest paid annually can improve your total financial picture when responsibly managed. And remember, interest paid on home mortgages and home equity loans are tax deductible. Most other consumer interest payments are not tax deductible.

3. Financing Unexpected Expenses

Life happens and today, life sometimes happens in very unexpected ways. When faced with unexpected big expenses sometimes cashing out a portion of your home equity can be the least expensive way to finance unexpected family expenses.

4. A Bridge to Manage Disruptions In Family Income

Let’s face it. Today’s uncertain economic times have forced many families to live month-to-month and paycheck-to-paycheck when they have never had to live so close to the edge previously. Refinancing your mortgage to provide required cash flow and breathing room during this difficult time can be a responsible and reasonable choice as you adjust to a new economic reality or disruption in family income.

A Cautionary Note

It is unwise to view home equity as an instant gratification piggy bank to fund a frivolous shopping spree or vacation, or an otherwise unaffordable extravagant luxury. Home equity built up over years of responsible and timely payments, when leveraged responsibly, gives you breathing room to manage your financial obligations.