Rhode Island Cash-Out Refinance Rules & Guidelines

Have you been eying those low mortgage interest rates and wondering if now is the time to refinance for cash out? Home prices have risen 3% in Rhode Island since last year, so you could benefit from refinancing your mortgage, saving on your payment, and pulling out cash to remodel your home possibly.

Rhode Island Cash-Out Refinance Overview

The average home price in Rhode Island is $285,000, and many Rhode Islanders have owned their home for years. So, they have a lot of equity they can tap if they want to improve their homes and make them worth even more.

With the coronavirus pandemic hitting the country and the economy, this is a good chance to get a low-interest rate on your first mortgage and get the equity you need to improve your property. When you eventually sell your home, a major renovation could really pay off in your wallet!

According to Investopedia, a cash-out refinance is defined as paying off your old mortgage with a new mortgage. It has a lower interest rate (hopefully) and a higher balance. The higher balance is from the equity that you are going to borrow from your home.

For example, if you have a $300,000 mortgage in Rhode Island and you owe $150,000 on it. You have at least $150,000 in equity, assuming the value has not dropped during COVID-19.

If you want to take out $100,000 in equity to build an extension and renovate your kitchen, you could refinance the property with a new balance of $250,000 and $100,000 in your pocket.

Regarding interest rate, if your rate goes from 4.5% to 3.5%, you could save $118 per month on your 30-year mortgage.

Rules & Guidelines on Rhode Island Cash-Out Refinance

Refinancing your mortgage for cash out is often a savvy move in uncertain economic times as interest rates tend to drop. But you have to qualify, and some lenders have been tightening their standards lately. Many lenders are checking income and employment more carefully now that the job market is so volatile.

Also, credit standards have been rising. To qualify for a refinance for a Freddie Mac or Fannie Mae-backed mortgage, you probably need a credit score of at least 680.

Investopedia also says you should have a debt-to-income (DTI) of no more than 43%, but many lenders now want 36%. The DTI is a comparison of your total monthly debt payments to your gross monthly income.

Most lenders in Rhode Island will not allow you to take out more than 80% of your home’s value, as well. So, there will still be equity in your home after your refinance. This protects you if home prices plunge so you are not upside down on your home.

Considerations with a Rhode Island Cash-Out Refinance

Are you ready to call the lender and pull cash out of your Rhode Island property? Keep a few things in mind before you do that. It’s always worthwhile to consider all the angles of a refinance.

  • Closing costs. The average closing costs in Rhode Island are $3,477. The best option is to pay your closing costs when you close the loan, but many Rhode Islanders choose to roll these costs into the loan. It is best to do a refinance if you are going to stay in the home for a few years. If you save $118 per month on your mortgage with your new rate, you would need to stay in the home for about 30 months to break even.
  • Your home is collateral for your loan. You already knew this, but it is worth a reminder when you increase the size of your mortgage. If you cannot pay, you could lose your home. Be sure your job is stable during the COVID-19 turmoil before you take on more debt.
  • If you have a low-interest rate already, getting a home equity loan might be a better bet to tap your equity. This is a second mortgage with a slightly higher interest rate that allows you to tap your equity while keeping your first mortgage in place.
  • Many people who refinance do so with a 30-year mortgage. They may not realize that they are starting over on their payments. So if you paid 15 years and get a new 30-year mortgage, that’s 30 more years of payments. If you are close to retirement, you may prefer to get a 15-year mortgage instead.
  • If you are betting writing off your mortgage interest, you must use your equity for home improvements, according to IRS rules.

Final Thoughts on Rhode Island Cash-Out Refinance Rules & Guidelines

Doing a cash-out refinance on your Rhode Island home can be a great move in the current interest rate environment. Improving your home with a new kitchen or extended family room will probably increase its value too. It’s a good idea to get that application going because who knows how long these low rates will last!

Rhode Island Cash-Out Mortgage News

  • Real Estate Market Collapsing, Falling Victim to COVID-19: The real estate market in Rhode Island collapsed in April as most sellers decided to not list their homes, open houses are restricted, and there is so much uncertainty in the economy. One bright spot is low-interest rates, however, which make refinancing attractive for some homeowners. (Whatsupnewp.com)
  • Rhode Island Housing Prices Hit Record Highs – 43% Increase Over Past Decade: The median home price of a property in Rhode Island hit $285,000 at the beginning of 2020, a 43% increase from a decade ago. The COVID-19 pandemic may begin to affect those prices, but it still could be a great time to refinance with super-low interest rates. (Golocalprove.com)
  • Home Values on the Rise In Rhode Island, Making It a Great Time to Refinance: Home values in Rhode Island are up 3% from a year ago and interest rates are low, so this could be the perfect time to refinance. (Moneywise.com)

Author: Bryan Dornan

Bryan Dornan is a financial journalist and currently serves as Chief Editor of Cash Out Refi Tips.com. Bryan has worked in the mortgage industry for over 20 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, Linkedin and ActiveRain.

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