How a Cash-Out Refinance Loan Can Help You in Times of High Inflation

by | Apr 11, 2022 | Refinancing | 0 comments

A cash-out refinance loan allows you to repay your original debt while leaving some extra cash in your pocket that you can use to your advantage, especially during times of high inflation. 

Let’s learn more about what cash-out refinance is and how it works, followed by an insight into how a cash-out refinance loan can help you in times of high inflation. 

What is Cash-Out Refinance and How does it Work?

A cash-out refinance is a specific type of refinancing option that allows you to replace your old mortgage with a new mortgage where you get access to a larger amount than the one you previously owed. As a result of this refinancing option, borrowers get access to some extra cash that they can use to their advantage. Through cash-out refinancing, borrowers can take advantage of the current interest rates, potentially decrease their monthly mortgage payments and increase their access to cash. 

Cash-out refinancing simply means replacing the existing mortgage that you already have for your home with a mortgage of a higher value. So, for example, if you borrowed $200,000 for your home 10 years ago and have already repaid 50% of the mortgage amount, you still owe $100,000. However, you can get a cash-out refinance for $180,000, which allows you to pay back the original mortgage of $100,000 and reserve the extra cash for other uses. 

You can use the excess cash for home improvement projects, secure your debt, and pay your credit card bills, and you can also use the extra cash to fund your investment, which is often a good idea, especially in times of high inflation.  

What Happens to the Cost of Borrowing in Times of High Inflation?

In times of high inflation, the cost of borrowing i.e., the interest rates increases. The bigger idea is to control the money supply in the market, which is why the government increases the cost of borrowing. Increasing the interest rate is a two-tonged approach as it encourages people to save more rather than spend. Moreover, when the interest rates are high, borrowing decreases, which reduces the money supply in the economy. Thus, increasing the cost of borrowing is one of the measures that governments take to control inflation and its negative implications on the economy. 

How a Cash-Out Refinance Loan Can Help You In Times of High Inflation?

Cash-out refinancing can turn out to be advantageous in times of high inflation. Since it allows you to get a bigger mortgage than you already have, it leaves excess cash that you can use to fund your investment. 

In times of high inflation, when the interest rates are higher, you can expect a higher return on your investment, which makes cash-out refinancing a lucrative option. However, in that case, you need to ensure that your rate of return on your investment is higher than the interest rate that you are paying on your mortgage. If the return on your investment is higher than the rates you are paying for your mortgage, you will end up earning some additional interest income as you opt for cash-out refinancing. 

However, when using cash-out refinancing for investment, don’t forget that it is a loan that needs to be repaid. Moreover, you should also remember that a cash-out refinancing mortgage is a secured loan against your home, so if you cannot repay the loan or cannot make the payments, you can be at the risk of losing your property. 

Therefore, if you are using cash-out refinancing for investment, make sure you opt for safe investments such as bank deposits. Avoid investing your excess cash in volatile stocks that may offer lucrative returns but are attached with higher risks. 

Final Words

Cash-out refinancing can be an excellent option for many people, especially in times of high inflation. Since a higher interest rate is a measure that is used to control inflation, you can use it to your advantage by making wide investment decisions. 

If you are looking for an experienced, full-service lender in Maine, get in touch with Integrity Mortgage LLC (NMLS #1692497), and make the best financing decision for your future home. To learn more about our services, call us today at 833-775-4200.

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