Should You Do a Cash-Out Refinance in 2022?

by Maurie Backman | Published on Dec. 11, 2021

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Here's how to know if taking cash out of your home is a good idea for the new year.


Key points

  • Mortgage rates will likely remain competitive in 2022, making it a good time to refinance.
  • A cash-out refinance could work to your benefit, but it's important to understand the pros and cons.

You may have certain goals in mind for 2022. Those could include renovating your home, paying off an existing loan or credit card balance, or taking the long vacation you've been dreaming about for years.

But there's one thing you'll need to meet whatever your primary goals are -- money. And if you don't have it available in savings, you may be considering taking it out of your home with a cash-out refinance.

With a regular refinance, you swap your existing mortgage for a new one and wind up with the same remaining loan balance, ideally at a lower interest rate. With a cash-out refinance, you borrow more than your remaining home loan balance and get the rest of that money in cash. You can then use that cash for any purpose, whether it's buying furniture or paying off another loan.

At this point, many homeowners are sitting on more equity than usual due to high home values. That means a cash-out refinance may be fairly easy to qualify for in 2022. Plus, mortgage rates are likely to start off low next year, and they'll most likely stay low throughout the year. That also makes it a good time to refinance.

However, while doing a cash-out refinance may be feasible in 2022, that doesn't mean it's the right move for you. Here are some benefits and drawbacks to consider before applying for a cash-out refinance.

The upside of a cash-out refinance

If you have enough equity in your home, a cash-out refinance may be easier to qualify for than another type of loan, such as a personal loan. And it may come with a much lower interest rate, making it less expensive for you to borrow that money.

Imagine you're looking at renovating your basement. You could take out a personal loan, but you might pay twice as much interest on it as you would with a cash-out refinance.

The downside of a cash-out refinance

When you do a cash-out refinance, you tap some of the equity you have in your home. The result? You're left with less equity, which could prove problematic if you run into a financial crunch and need to borrow against your home in the future.

Also, while today's refinance rates are very affordable and are likely to stay that way in 2022, a cash-out refinance is still a loan. If you go this route, you may end up with a much higher mortgage payment than what you currently have right now, despite snagging a lower interest rate. That's because you'll be adding to your loan's principal.

What's the right call?

A cash-out refinance could be a good way to borrow money when you need to. Just think through the pros and cons carefully before deciding to apply for one in the new year.

You may decide there's a better way for you to borrow the money you need. Or, you may decide to put some of your plans on hold until you're able to save up enough money to meet those goals without borrowing.

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