Homeowners can refinance their mortgages at any time of year, of course. But for a variety of reasons, many homeowners looking for a cash-out refinancing of their existing mortgage do so in the spring.
There’s a reason cash-out refinancing peaks in the springtime, and it’s not because there’s some mysterious connection between spring showers, budding flowers, and mortgages.
Remind Me: What’s a Cash-Out Refi?
Refinancing your mortgage is essentially taking out a new mortgage to replace your existing mortgage. Many folks refinance their mortgages to take advantage of lower interest rates. Other people may refinance their mortgages to adjust the term, or length of time they’ll spend repaying their mortgage. Refinancing into a longer term can lower your monthly payment. Refinancing into a shorter term mortgage can help you pay off your mortgage faster, with less overall interest.
For a cash-out refinance, a homeowner with some equity in her home can take out a new mortgage for more than she currently owes on her existing mortgage, and pocket the difference as cash.
So, for example, let’s say your home is worth $200,000 and you currently owe $100,000 on your existing mortgage.
Now, if you needed some extra cash—we’ll say $25,000—you could refinance your mortgage for $125,000: that would cover the $100,000 you still owe on your original mortgage, plus the $25,000 cash you could put to other uses.
Now, you might be thinking, surely people need extra cash year-round. Why would cash-out refinances spike in the springtime? Here are three big reasons more homeowners seek cash-out refinancing in spring than any other time of year.
Spring is Tax Season
Tax time probably isn’t your favorite time of year unless you’re an accountant. But if you filed your taxes on time, you’ve almost certainly got most of the paperwork you’ll need to apply for that refinance in order and ready to go. W2 forms for you and your spouse? Check. Expense reports for your business? Check. Profit and loss statements from your investments? Yep, you’ve got those ready, too. Documents that might be annoying to round up any other time of year are probably in a neat little pile on your home office desk right now.
Plus, chances are good that you’re either checking your bank balance for your tax refund deposit, or smarting a bit from that check you sent to the IRS. Either way, tax season forces all of us to take a good, hard look at our finances. If you’re like most people, you’ve got a clearer picture of your financial situation right now than you might have any other time of year. If you’ve been pondering whether tapping equity in your home makes sense for you and your family, you’ve probably got all of the necessary numbers to make that calculation at the ready.
Spring Cash-Out Refinancing Funds Seasonal Home Projects…
People frequently tap the equity in their homes to tackle home improvement projects. While there are home improvement projects folks can tackle in the winter, many big ticket home improvement projects require good weather.
It’s not easy breaking ground for a pool or building a new deck when the ground is frozen. Attempting to put in a new roof when there’s potential for snow is asking for trouble. Even interior projects like a major kitchen remodel or bathroom makeover may be easier for your contractor when the weather cooperates. Contracting work picks up in the late spring and summer, so it’s not surprising that cash-out refinancing to fund those projects pick up in the early spring.
…and Provides Funding for Major Life Events
It’s not unusual for homeowners to cash-out equity in their homes to pay for big, once-in-a-lifetime events. Spring is a time of renewal, and it’s not an accident that many of us start making big plans this time of year. College acceptance letters show up in the spring. So do the bills for big summer weddings.
That kid you assumed was going to Big State U got a surprise acceptance to an Ivy League college? Your only daughter is getting married in June? You’re retiring this year, and you’ve got big plans to take that trip to Europe you’ve only ever talked about this summer to celebrate? Well, you’ll need money to pay for those things. If you’re considering a cash-out refinance to cover it, now’s the time to get that ball rolling.
If you’re interested in a cash-out refi, it’s important to remember that the requirements for qualifying for a cash-out refinance are similar to what they were when you got your first mortgage, but they’re not quite identical. At Morty, we can help you compare offers from multiple lenders and determine whether a cash-out refi makes sense for you.