8 Best Ways to Use a Cash-Out Refinance in 2024
As rates drop and property values rise in 2024, homeowners will have a secret weapon against brutal inflation and soaring interest costs: a cash-out refinance.
Whether you’re buckling under high credit card rates or just want to remodel a dated kitchen, the equity in your home could be a lifeline.
Here are 2024’s best use cases for a cash-out refinance.
Kick Credit Card Debt to the Curb
According to the St. Louis Federal Reserve, credit card balances in the U.S. hit an all-time high of $1.02 trillion in November 2023. That’s nearly $4,000 for every adult in the U.S.
Some consumers have much more debt. Someone with $20,000 in credit card debt paying an average 25% interest rate is burning $5,000 per year in interest costs alone without touching their balance.
A cash-out refinance can consolidate the balance into a mortgage and get that interest rate down to 6-7% depending on where rates land in 2024.
Pay Off a HELOC
Many homeowners with ultra-low rates chose to get a HELOC instead of refinancing into a high-interest cash-out mortgage.
But HELOC rates are high. Someone with a rate of "prime + 1" is paying 9.5% at the time of this writing. On a $100,000 loan, that’s a payment of nearly $800 per month (interest-only).
In 2024, many homeowners will combine their first mortgage and 9-10% second mortgage into one low mortgage rate.
Consolidate Student Loans
Student loan debt will become an issue for many households in 2024. Budgets will strain as payments restart.
But those with home equity can consolidate student loans into their mortgage at better rates thanks to a new Fannie Mae program.
Pay Off High-Interest Debt
Other debt such as auto loans, business loans, and personal loans are also great candidates for consolidation. Consider paying off any debt with an interest rate of more than 8%. Also watch debt that is coming due such as a short-term real estate loan or private loan.
Make Home Improvements
Selling a home costs 9-10% of its value, a huge chunk to lose. If you’re moving just to get more square footage or amenities, think again.
What if you could eliminate the cost of selling and instead use it to customize your home?
Assume you have a $500,000 house. Instead of paying $50,000 toward agent commissions, transfer taxes, and closing costs, put that toward a $100,000 upgrade. Add a room, redo kitchens and bathrooms, and make other improvements. You benefit from this transaction, not agents and your state government.
Drop Your Rate While Getting Cash
Those who purchased a home in mid-2022 and later probably have rates in the high 6s to low 8s.
If you can drop your rate even by 0.25% while getting cash, a refinance could be well worth it. If rates drop far enough, you may be able to finance closing costs, get cash, and still end up with a lower rate.
A 2024 refinance may be a very easy choice to make.
Get Into a Better Loan Product
Most people choose a 30-year fixed loan, but other opt for an adjustable-rate mortgage or non-QM loan where terms aren’t as favorable.
Still others have a 15-year loan, but now those payments are too much.
Consider getting cash while converting your less-than-ideal mortgage into a stable fixed loan.
Finance an Investment Property Purchase
As rates drop, it may be a good time to buy an investment property. Some investors seed their first rental, Airbnb, or fix-and-flip project with home equity.
For instance, you could take out an extra $100,000 from your home to use as the down payment and repair costs on an income-generating property.
Just make sure you have a great exit or stabilization strategy and that future rental income will cover your increased primary home payments.
How Will You Use Your Home Equity?
In 2024, homeowners could enjoy lower rates and higher home values. This is a perfect recipe for tapping into home equity for many purposes.
Have a financial goal? Consider leveraging your hard-earned equity to get it done.
