Can You Get Extra Money On Your Mortgage For Furniture

Can you get extra money on your mortgage for furniture? Yes, you can! If you’re refinancing your mortgage, you might be able to tap into your home’s equity to access additional funds for furniture. Typically, lenders allow you to borrow up to 80% of your home’s value. For instance, if your home is worth $300,000, you could potentially access $240,000. If your current mortgage balance is $200,000, you might be able to pull out $40,000 for that new furniture set you’ve been eyeing.

Understanding Mortgage Equity

What is Home Equity?

Home equity is the difference between your home’s current market value and the amount you owe on your mortgage. If your home is worth $300,000 and your mortgage balance is $200,000, your home equity is $100,000. This equity can be a valuable resource when looking to make significant purchases, including furniture.

How to Calculate Your Equity

To determine how much equity you have, use this simple formula:

Home Equity = Current Market Value - Mortgage Balance

For example, if Sarah, a 35-year-old teacher in Denver, purchased her home for $250,000 five years ago and has made payments that brought her mortgage balance down to $200,000, her home’s current market value of $300,000 gives her an equity of:

$300,000 - $200,000 = $100,000

This means Sarah has a significant amount of equity to work with if she decides to refinance or take out a home equity loan.

Refinancing Your Mortgage

What is Mortgage Refinancing?

Refinancing means replacing your existing mortgage with a new one, typically to secure a lower interest rate or to gain access to home equity. When you refinance, you may be able to take out extra cash, which can be used for purchasing furniture.

How Much Can You Borrow?

Most lenders allow you to borrow up to 80% of your home’s equity. If Sarah wants to use her equity to buy furniture, she could potentially access up to $80,000 of the $100,000 in equity she has. However, she needs to keep in mind her current mortgage balance. If she refinances to a new mortgage of $280,000, she’ll still have $20,000 in equity left.

Costs of Refinancing

Refinancing isn’t free. There are costs involved, often ranging from 2% to 5% of the loan amount in closing costs. If Sarah refinances for $280,000, her closing costs could be as much as $14,000. She must weigh these costs against the benefits of obtaining extra cash for her furniture.

Home Equity Loans vs. Home Equity Lines of Credit (HELOC)

Home Equity Loans

A home equity loan is a one-time lump sum borrowed against your home equity. It usually comes with fixed interest rates. If Sarah chooses a home equity loan for $40,000 to buy furniture, she’ll receive that amount upfront and start making fixed monthly payments.

Home Equity Lines of Credit (HELOC)

A HELOC works like a credit card. You can borrow up to a certain limit and pay interest only on what you use. If Sarah thinks she might want to buy furniture over time, a HELOC could be a better option, giving her flexibility. Let’s say her HELOC limit is $50,000; she could draw $20,000 for furniture now and leave the rest for future purchases.

Which is Better?

Deciding between a home equity loan and a HELOC depends on your financial situation. If you prefer a fixed payment and know exactly how much you need, a home equity loan may be the way to go. If you want flexibility to borrow as needed, consider a HELOC. Sarah might choose a HELOC if she anticipates needing more funds for future home improvements in addition to furniture.

Using Cash-Out Refinancing for Furniture

What is Cash-Out Refinancing?

Cash-out refinancing is when you refinance your mortgage for more than you owe and take the difference in cash. This option is popular for homeowners looking to leverage their home equity.

How Does It Work?

Returning to Sarah, if she refinances her mortgage for $280,000, and her current mortgage balance is $200,000, she would receive $80,000 in cash. This cash can be used for purchasing furniture, paying off debt, or even funding home improvements.

Pros and Cons

The benefits of cash-out refinancing include access to a large sum of money and potentially lower interest rates compared to personal loans. However, it’s also important to note the risks, like increasing your mortgage balance and possibly extending your loan term, which can mean paying more interest over time.

Real-World Scenarios

Scenario 1: Sarah’s New Living Room

Sarah, wanting to refresh her living room, decides to refinance her mortgage to access $40,000 for new furniture. After considering her options, she chooses a cash-out refinance. She secures a new mortgage of $280,000 at a 3.5% interest rate, with a 30-year term.

Her new monthly payment increases to about $1,257, but she’s happy with her new furniture and feels it enhances her home’s value.

Scenario 2: Mike’s Flexible Approach

Mike, a 40-year-old software engineer in Austin, opts for a HELOC. He has $100,000 in equity and decides to take out a $30,000 line of credit for furniture. With a variable interest rate that starts at 4%, Mike plans to buy furniture over a year, drawing funds as needed.

Since HELOCs typically have interest-only payments during the draw period, Mike enjoys lower payments in the short term and has the flexibility to borrow more if necessary.

Scenario 3: Lisa’s Home Improvement

Lisa, a 28-year-old graphic designer, also wants to furnish her new home but is looking to make some repairs as well. She chooses a home equity loan of $50,000 to cover both her furniture and some repair costs. With a fixed rate of 4.25%, Lisa has clear budgeting for her monthly payments, which helps her feel secure.

FAQ Section

1. Can I use a personal loan for furniture instead of mortgage refinancing?
Yes, personal loans can also be a good option for buying furniture. They typically have higher interest rates than home equity loans or refinances, but the application process is quicker and doesn’t require you to tap into your home equity.

2. What credit score do I need for a cash-out refinance?
Most lenders prefer a credit score of at least 620 for cash-out refinancing. However, better rates and terms are available for scores above 740. It’s best to check with your lender for their specific requirements.

3. How long does it take to get approved for a HELOC?
Getting approved for a HELOC can take anywhere from a few weeks to a couple of months, depending on the lender and your financial situation. It involves a home appraisal and a credit check.

4. Can I use the cash from a cash-out refinance for anything?
Yes, you can use the cash for virtually any purpose, including furniture, home improvements, or even paying off debt. However, remember that taking cash out increases your mortgage balance.

5. What if my home’s value decreases after refinancing?
If your home value decreases after refinancing, it can impact your equity. However, as long as you make your payments, you’re not at risk of losing your home. If you plan to sell, it might affect how much you can sell for, but it won’t impact your current mortgage.

Conclusion

Getting extra money on your mortgage for furniture is definitely possible through refinancing, home equity loans, or HELOCs. Each option comes with its own benefits and downsides. It’s crucial to evaluate your financial situation, long-term goals, and the costs involved.

If you think you’re ready to take the plunge, check with your lender to see what options are available to you. Whether you use the cash to buy that dreamy sofa or spruce up your home with new decor, accessing your home’s equity can make your home feel even more like you.