What Is A VA Cash-Out Loan?
After completing their time in the armed forces, many veterans return home to find that the world hasn’t changed all that much for them. They of course have the satisfaction of an honorable stint in uniform, but their hometowns and families have continued to move right along without them. However, there are a few key differences that they soon discover, and these might apply to you too.
One of the best benefits available to veterans is the ability to get special deals on home mortgages and mortgage refinancing. Because of your status, you can get lower rates and other advantages over other borrowers. These options can help your finances in two ways.
First, a refinance can get you better repayment terms. You can get either a shorter repayment term, a lower payment, or both. This lower rate allows you to either pay off your mortgage faster or keep the same payoff date with a lower payment.
But the advantage that catches many people’s attention is the ability to get cash from the equity in their home. This is known as a “cash-out loan.” It is very simple to understand.
Let’s say that you have a home valued at $160,000. You have paid on your mortgage for several years and now have your balance down to $83,000. That means you have $77,000 in equity in your home. Equity is just the difference between what your home is worth and what you owe on it.
With a cash-out loan, some amount of that $77,000 would be available for you to withdraw from your home’s equity and use for any purpose you choose. You can utilize it for a child’s college education and avoid saddling yourself (or your child) with student loans that never seem to go away. You could use it to start a business that will help you earn a living after your military discharge. You could use it to help aging parents, travel, buy investment properties, or almost anything you choose. One of the most common purposes is home improvements, such as a new roof, a renovation, or an addition. These are very common purposes when a veteran is just getting home from a deployment and finds lots of work is needed on the house.
Of course, there are some key things to keep in mind as you begin to investigate this process. First, you must remember that if you maximize your cash out that is available today, it will be quite a few years before you build up enough equity to do it again. So using the money just for fun or for risky investments could prove detrimental to your financial health.
Second, you need to weigh the value of your intended purposes of the cash out against the value of paying off your home faster. A big part of the equity you have built in it was created by years and years of payments. If you don’t take cash out, you could continue with the same payment at a lower interest rate and cut years off the term of your mortgage.
With those points made, cash-out loans are far superior to many other options. They are better for your credit and have much lower interest rates compared to credit cards or unsecured loans. They are completely flexible and can be used for any purpose. And they’re liquid; if you take out more than you need, you can always put the rest back toward paying down your house. This might be the route you choose if your withdrawal for college expenses ends up being more than you need because your son or daughter got a scholarship.
Getting cash out of your home is much like a tactical military situation because you have objectives that can be met through a variety of different means. Now you just have to weigh your choices and settle on the one that provides the highest likelihood of the perfect outcome.