SoFi

Working as a paramedic is a rewarding career path for many. Though the job is often about more than just the money, it is possible for paramedics to earn a living. The median annual wage for paramedics is $46,770, according to the U.S. Bureau of Labor Statistics (BLS).

Keep reading for insights into a paramedic’s salary.

What Is a Paramedic?

A paramedic provides emergency medical services to individuals when they’re injured or sick. They may also be responsible for transporting people to the hospital, where they can receive further medical treatment. Because medical emergencies can happen any time of day, paramedics often work nights, holidays, and weekends. Many work 40 hours a week, if not more.

To become a paramedic, you usually must meet certain postsecondary educational requirements, which can vary by state.

How Much Is a Paramedic’s Starting Salary?

How much does a paramedic make a year? While the median annual salary for paramedics is $46,770, entry-level salaries may be lower. As with most jobs, a paramedic’s pay rate should become more competitive as they progress in their career.


💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.

Recommended: Is a $100,000 Salary Good?

What Is the Average Salary for a Paramedic?

If you’re considering going into emergency medical services — and thinking about the long shifts that are often involved — you may be wondering how much a paramedic makes an hour.

According to BLS data, paramedics earn a median hourly rate of $17.76. But how much they actually earn depends on how many hours they work, how experienced they are, and where they live.

In fact, salaries can differ greatly by state. For example, the annual mean wage of a paramedic in California is $71,470. In Alabama, it’s $37,820.

It’s understandable that some paramedics earn more based on where they live, as the cost of living can vary a lot by state. At the very least, paramedics can expect to earn the minimum wage.

The following table breaks down the mean annual wage for paramedics by state.

Recommended: Salary vs. Hourly Pay: How Their Pros and Cons Compare

Paramedic Benefits & Job Considerations

Alongside earning a paycheck, paramedics may also receive valuable benefits such as:

•   Healthcare, dental, and vision insurance

•   Paid time off

•   Sick leave

•   Retirement plans

Pros and Cons of a Paramedic Salary

If someone is debating whether or not to pursue a career path as a paramedic, they’ll want to consider both the advantages and disadvantages of the job.

Pros

•   Potential career growth. It is anticipated paramedic jobs will grow by 7 percent by 2031, and there will be around 20,000 new openings for paramedics and EMTs every year over the next decade.

•   Fulfillment. Helping people for a living and saving lives can be very fulfilling ways to spend a career.

Cons

•   Physically demanding. Working as a paramedic can require a lot of lifting, bending, and kneeling, which can take a physical toll.

•   Dangerous. Working with the sick can expose you to diseases and viruses and potentially increase your risk of injuries.

•   Hectic work schedule. Not only are paramedics expected to work odd hours, their time on the job can be very busy and stressful, with life-or-death stakes. Shifts can also be long and last up to 24 hours. This may also not be a great job for introverts, as working as a paramedic requires interacting a lot with patients and teammates.

💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

The Takeaway

Pursuing a career as a paramedic requires a secondary education, a lot of hard work, and the ability to work odd hours. The role can be very stressful, as the stakes are quite high when delivering emergency medical services. However, with a median annual salary of $46,770, working as a paramedic can also be a reliable and rewarding way to earn a living. What’s more, you may find that as your career progresses, your earning potential will grow as well.

FAQ

What are the highest-paid paramedics?

Exactly how much money does a paramedic make? That depends on how much experience the paramedic has, among other factors. The highest 10 percent of top-earning paramedics earn more than $47,580.

Can a paramedic make six figures?

It is unlikely a paramedic will earn a salary of $100,000 or more, but is not impossible. Typically, the highest-paid paramedics work in general medical and surgical hospitals, and they earn a median annual salary of $47,000.

What is the lowest-paid paramedic?

On the low end, paramedics can earn less than $23,620. However, they can expect their salary to rise as they gain years of working experience.

Photo credit: iStock/sturti

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL0723003

No doubt you’re aware that sending a child to college is expensive. The current cost of attending a private college is $55,840 per year for students who live on campus ($38,768 of it on tuition and fees), according to the Education Data Initiative. Public universities are generally more affordable, with tuition and fees averaging $9,678 per year (for in-state students) and $27,091(for out-of-state students). But those numbers don’t include room and board.

As a parent, sometimes just thinking about the cost of college for your kid (or kids) can feel bleak. Fortunately, there are a number of college fund options that can make it easier to save a sizable sum by the time your child goes to college. Generally, the earlier you start, the better, but it’s never too late to get going. Read on for a closer look at how to set up the best type of college fund for your child.

How to Set up College Funds: Getting Started

When it comes to setting up a college fund, there are a few savings plans and investment accounts that are specifically designed to help people save for their child’s education expenses. Here’s a closer look at your options.


💡 Quick Tip: SoFi offers low fixed- or variable-interest rates. So you can get a private student loan that fits your budget.

529 Plans

These accounts, also known as qualified tuition plans, are named after an IRS code section and give parents the option to save for college in the name of a child while providing certain tax advantages.

There are two kinds of 529 Plans: prepaid tuition plans and education savings plans.

Prepaid tuition plans let you buy future credits or course units at participating colleges or universities. These credits are used to help cover the cost of tuition for the beneficiary. Most prepaid tuition plans have residency requirements and are often sponsored by state governments.

Education savings plans are investment accounts that can be used to save for the beneficiary’s qualified education expenses. The funds can be used to pay for higher education or private elementary or high schools. A 529 plan allows your savings to grow tax-free, and some states even offer a tax deduction on your contributions.

If your child decides not to go to school, it’s possible to roll the account over into the name of another family member. If the funds aren’t used for education-related expenses, there may be taxes and penalties.

Generous family and friends can also contribute to a child’s college savings plan. They may choose to make deposits to an existing 529 account or set up one themselves, naming a beneficiary of their choosing.

Recommended: Benefits of Using a 529 College Savings Plan

Coverdell Education Savings Account

This account has more limitations but may work well for some families. Individuals who have a modified gross adjusted income (MAGI) that falls below $110,000 ($220,000 if married and filing jointly) may be eligible to save for college using a Coverdell Education Savings account.

You can contribute up to $2,000 for a single beneficiary in a given year. Funds saved in this type of account can be used for eligible elementary and secondary expenses, in addition to higher education expenses. Contributions are made after taxes and must be made in cash. Typically, the funds can be withdrawn without a fee if they are used for qualified education expenses.

Recommended: Paying for College: A Parent’s Guide

The Uniform Gift to Minors Act (UGMA) Account

This custodial account allows your child to own stocks and mutual funds. The custodian still controls the account until the minor reaches legal age. Note that it’s not tax-free.

Annual contributions that exceed $17,000 ($34,000 for a married couple) may be subject to a gift tax. It’s possible that a UGMA may reduce the amount of financial aid eligibility. Additionally, there is no penalty should the funds not be used for education expenses.

Roth IRA

Although generally used for retirement savings, a Roth IRA can be used to pay for the cost of college. Contributions to Roth IRA are made with after-tax dollars but earnings grow tax-free.

Generally, to make fee-free withdrawals from an IRA, the account holder needs to be at least 59 ½ years old. However, If you made the first contribution to your Roth IRA at least five years before, you can also withdraw the growth for qualified education expenses, including tuition, books, and supplies.

Keep in mind that, while there may not be an early withdrawal fee, the earnings withdrawn may still be subject to income tax.

Easing the Financial Burden

Even after years of diligent saving, paying the full cost of college tuition isn’t affordable for some families. Fortunately, there are a few options to fill the gaps and help parents and students pay for college.

Students getting ready to start college or those who are already enrolled could look into options like scholarships, grants, or private student loans.

You’ll want to be sure to fill out the Free Application for Federal Student Aid (FAFSA). This is the first step in qualifying for federal aid, including scholarships and grants, work-study, and federal student loans.

Scholarships

These can be a powerful asset when paying for college since it’s money that doesn’t have to be paid back.

Scholarships are typically merit-based and can be offered through a variety of different types of organizations like local nonprofits, corporations, or even sometimes directly from universities. There are a number of searchable databases that compile different scholarship opportunities.

Grants

In addition to scholarships, there are thousands of grants available to students. These grants are issued by the federal government, the Pell program, and individual states. Some are need-based, while others are merit-based. To find out if you qualify and to become eligible for grants, you need to fill out the FAFSA.

Work-Study Programs

The federal work-study program provides part-time jobs for undergraduate, graduate, and professional students with financial needs. These jobs allow them to earn money to help pay education expenses. To be eligible for work-study, you must fill out the FAFSA.

Student Loans

There are two types of student loans: federal and private. Federal student loans are awarded as a part of a student’s financial aid package and can either be subsidized or unsubsidized.

Subsidized Federal Student Loans

Subsidized student loans are awarded to eligible undergraduate students based on need. The federal government covers the interest on these loans during the time the student is in school at least half-time, during the six-month grace period after leaving school, and during deferment periods.

Unsubsidized Federal Student Loans

Unsubsidized student loans are not awarded based on financial need, and are available to both undergraduate and graduate students. Interest on these loans begins to accrue as soon as the loan is disbursed. If the borrower chooses not to pay the interest while in school, during grace periods, or while in deferment, the interest will be added to the loan principal.

Private Student Loans

Private student loans are available through private lenders, including banks, credit unions, and online lenders. Typically, for someone to get a private student loan, lenders will evaluate the borrower’s credit history, which isn’t the case with most federal student loans. This is why some borrowers rely on a cosigner to secure private student loans.

Many private student loans require payments while the student is still in school, but some do allow you to defer payments until after you graduate (interest will continue to accrue, however.)

An Alternative Way to Finance College

Some parents might consider taking out a parent-student loan to help their kids pay for college. The federal government makes Direct PLUS loans available to parents and graduate students.

Parent PLUS Loan interest rates and fees are set by the Education Department and are higher than other types of federal student loans. The interest rate for the 2023-2024 school year on a Direct PLUS loan is 8.05% and is fixed for the life of the loan.

Some private lenders also offer parent student loans. Private parent loan interest rates can be fixed or variable and are based on the borrower’s creditworthiness. Private loans may offer lower rates than federal PLUS Loans for well-qualified applicants.


💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.

The Takeaway

There’s no time like now to start saving for college. There are a variety of accounts that are specifically designed to help families save for their children’s future college education, including 529 savings plans and Coverdell Education Savings Accounts.

Beyond savings, students and their families rely on things like scholarships, grants, and student loans to help cover the cost of higher education.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOIS0823040

Refinancing your student loans can be an excellent way to save money on interest, lower your monthly payment, or consolidate student loan debt. However, refinancing with a private lender makes it so you lose access to federal perks, such as federal loan forgiveness programs. This is true whether you choose to refinance with or without a cosigner.

A cosigner is someone who takes on loan repayment responsibility if the primary borrower falls behind on payments. If you want to refinance without a cosigner, you must meet the loan criteria on your own. Without a cosigner, you will also be 100% responsible for the loan. If you default on payments, it could impact your credit.

If refinancing seems like a reasonable course of action to make your student loans more manageable, it’s best to understand what it looks like to refinance student loans without a cosigner. Here’s what you need to know.

What Does It Mean to Refinance Student Loans Without a Cosigner?

Refinancing your student loans means you take out another loan with a refinance lender to pay off your outstanding student debt balance. You then make monthly payments to the new refinance lender. The goal of refinancing is to save money by qualifying for a lower interest rate and more favorable terms. Be aware, though, that refinancing disqualifies you from federal student loan forgiveness programs.

Like other types of credit, you can apply for a student loan refinance with a cosigner. Borrowers who can’t qualify independently for credit typically apply with a cosigner who can boost their application odds and help them qualify for the most competitive rates. Additionally, the cosigner takes on the responsibility of the debt. If you default on your loan payments, the cosigner will inherit the responsibility of repayment.

When you refinance your student loans without a cosigner, it means that you’re fully responsible for the loan. It also means that you must meet the approval requirements, such as having a good credit score and being in good financial standing.

Benefits of Refinancing Student Loans Without a Cosigner

Refinancing your student loans without a cosigner comes with a few benefits.

Financial Independence

Refinancing student loans without a cosigner is a good way to build financial confidence. Applying for and making payments on your refinance loan may give you a sense of accomplishment. The confidence you build from paying off your refinance loan can trickle into other aspects of your life and set you up for a financially secure future.

Not only that, but repaying student loans can help you build credit as long as you make your payments on time each month.

Recommended: How Do Student Loans Affect Your Credit Score?

You’re Solely Responsible for the Debt

If you choose to refinance your student loans without a cosigner, you’re allowing yourself to build your credit and take full responsibility for your debt.

When you refinance with a cosigner, you’re both equally responsible for the debt. If you make your payments on time, this can be a good thing. However, you both may experience financial consequences if you default on your student loan payment. Since the cosigner is also responsible for the debt, default could hurt both of your credit scores and chances of getting new credit.

Damaging your cosigner’s credit could cause a rift in your relationship, and no one wants that. If you refinance without a cosigner, any financial distress will only impact your finances.

Downsides of Refinancing Student Loans Without a Cosigner

While refinancing your student loans without a cosigner can improve your financial confidence, there are also some drawbacks to not applying with a cosigner.

Potentially Higher Interest Rates

Your credit score helps lenders determine your interest rate. Usually, those with the highest credit scores get the most favorable rates. Because of that, including a cosigner with excellent credit on your loan application can be advantageous, even if you meet the eligibility criteria yourself. A cosigner can enhance your creditworthiness and reduce the perceived risk, making you a more attractive borrower. This could result in a lower interest rate being offered to you.

Remember, the lower the interest rate, the more money you can save on your loan.

Can Be Harder to Get Approved

Finding a loan can be challenging if you don’t meet a lender’s refinance eligibility requirements. Adding a cosigner helps improve your odds because they take on the risk of the debt, too.

You’ll Lose Access to Federal Benefits

When you refinance your student loans with a private lender, whether you use a cosigner or not, you lose access to federal protections. For example, if you’re struggling to pay your federal student loans, you can enroll in an income-driven repayment plan. With this plan, your payment is based on your income and your family size, possibly bringing it down to zero. Make sure you don’t foresee yourself ever needing this or other federal benefits before deciding to refinance your student loans.

How to Refinance If You Can’t Find a Cosigner

When you refinance your student loans without a cosigner, you must provide essential information to prove your eligibility. Most lenders require borrowers to be 18 years or older, be employed or have income from another source, and have a decent credit score. Here are some other requirements it’s important to be aware of.

Qualifying With Your Own Credit Score

Lenders use various factors to determine what credit score makes you eligible for a refinance loan. The FICO® credit score scale ranges from 300 to 850, and those with the highest scores will qualify for the most competitive rates and terms.

Typically, lenders require primary borrowers to have at least a 670 credit score to qualify. If your credit score isn’t quite there yet, it may serve you best to refinance your student loans with a cosigner.

Debt-to-Income Ratio Requirements

Another factor lenders consider is your debt-to-income ratio, or DTI. This ratio informs lenders about the proportion of your monthly income utilized to repay debts compared to the amount of income that flows into your household.

To calculate your DTI, add up your monthly debt and then divide by your income before taxes (gross income). The lower your DTI, the lower the risk you’ll be to lenders. Ideally, you’ll want a DTI below 40%. If your DTI exceeds this amount, focus on paying down debt before you refinance student loans without a cosigner.

Employment Status and Income

To qualify for a student loan refinance without a cosigner, you must either:

•   be presently employed,

•   generate revenue from alternative sources,

•   or have an employment offer scheduled to commence within the next 90 days.

But remember, all lenders use different employment criteria to determine eligibility. Make sure you check with your lender to find out what they require.

Length of Credit History

Lastly, your credit history plays a role in your refinance loan approval. Your credit history includes your total debt, credit accounts (past and present), and your payment history. In addition, your credit history helps lenders determine how responsible you are with credit.

Tips on Refinancing Student Loans Without a Cosigner

Fortunately, it’s possible to refinance student loans without a cosigner. Here are a few tips to get you started.

Find a Lender With an Alternative Credit Check

Suppose you’re struggling to obtain approval for a loan without a cosigner. In that case, you may consider searching for a lender that employs an alternative credit screening process. Some lenders, for example, might provide a different pathway to approval that involves assessing your academic achievements, area of study, likelihood of graduation, and projected income to ascertain whether you qualify for a loan or refinancing.

Note that if you choose to use a lender with an alternative credit check, it could result in a higher interest rate for your loan refinancing.

Build Your Credit Score

Your credit score is one of the most important driving factors of loan approval. Usually, lenders want to see a credit score that hovers around 670 to qualify for a student refinance loan. If your credit score is less than 670, you may not qualify for the loan or you could receive a higher interest rate, which would defeat the purpose of refinancing.

It’s a good idea to take the time to build your credit before refinancing. Making on-time payments and paying down debt are two ways to do so.

Then, once you build your credit score, you can apply for a refinance loan and receive a more favorable rate.

Ensure You Have a Stable Income

Another critical factor lenders look at to determine your refinance loan approval is your income. The minimum income threshold varies across lenders, but typically lenders want you to make at least $20,000 annually.

If you just graduated college or are looking for a new job, you may need to hold off applying for refinancing until you have a stable income and can afford the new monthly payment.

Recommended: Student Loan Refinancing Calculator

Compare Lenders Before Applying

Student refinance loan criteria vary by lender, so comparing your options can increase your chances of approval and help you secure the most favorable rates and terms.

Most lenders will first prequalify you for the loan, which allows you to review the projected interest rates and conditions without committing to the loan. Prequalification only requires the lender to complete a soft inquiry of your credit, meaning it won’t impact your credit score.

Recommended: What’s the Difference Between a Hard and Soft Credit Check?

Get a Cosigner Release on Your Student Loans

Another option is to proceed with a cosigner and, after that, seek a cosigner release for your student loan. This release implies that the cosigner is discharged from the loan obligation if you meet specific criteria, such as fulfilling a minimum payment requirement.

After the release is approved, the cosigner is no longer held responsible for your debt if you default on your loan.

Refinancing Student Loans With SoFi

You can refinance your student loans without a cosigner, but you must meet the lender’s requirements. Most lenders require a credit score of at least 670 and a debt-to-income ratio below 40% to qualify for the best rates. If you have both of those, refinancing without a cosigner is worth considering.

SoFi offers a fast, easy online application, live customer support, no application or origination fees, and no prepayment penalties.

FAQ

Does refinancing a student loan release the cosigner?

Yes. When you refinance, you can remove the existing cosigner from the previous loan.

Can you refinance student loans without a cosigner?

Yes. As long as you meet the approval requirements, such as being employed, having decent credit, and having an income source, you can refinance your student loans without a cosigner.

Is it more difficult to refinance student loans without a cosigner?

The difficulty of approval depends on your financial situation. You may be fine qualifying without a cosigner if you have excellent credit and steady income. On the other hand, if your credit needs work or you’re unemployed, you may not qualify without a cosigner.

Photo credit: iStock/fizkes

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

A cash-out refinancing loan is treated differently by the IRS than a traditional mortgage. Although you receive a lump sum of cash, cash-out refinancing is considered a form of debt restructuring, and you do not pay taxes on the cash you receive.

With cash-out refinancing, you cash out a percentage of the equity that you have accrued in your home and replace your existing mortgage with one with a higher principal. You can use the cash for any reason, such as consolidating debt, paying for home renovations, or unexpected medical expenses.

Here’s what you should know about cash-out refinancing and the tax implications.

How Cash-Out Refinancing Works

When you refinance your mortgage, you cash out equity. Equity is the difference between your current mortgage balance and the value of your home today. Let’s say your home is worth $300,000 and the balance on your mortgage is $150,000, you have $150,000 in home equity.

A lender typically requires you to keep at least 20% of the value of your home in equity. In the above case, you would leave $60,000 in equity and have $90,000 to cash out. Your mortgage lender would also charge around 1% in closing costs.

The Tax Implications of Mortgage Refinancing

A cash-out refinancing loan is treated differently by the IRS than a traditional home loan because it is considered a form of debt restructuring. You do not pay tax on the money you receive in cash, and you might also be able to deduct some of the interest you pay on that cash from your taxes.

Here’s a closer look at the tax implications of a cash-out refinancing loan.

Is a Cash-Out Refinance Taxable?

Because the IRS considers a cash-out refinance to be a form of debt restructuring, the cash you receive is considered a loan, not income, and is not taxed. In addition, you could receive additional tax benefits depending on how you spend the money you receive.

If you use the cash to increase the value of your home, such as putting on a new addition or replacing your heating or cooling system, you can claim the interest that you pay on the loan as a tax deduction.

Before you do this, however, consult a tax professional to make sure that the work qualifies. Simple repairs like painting or general maintenance do not qualify for tax deductions. You will also have to keep meticulous records and save receipts documenting what you spend so that you can prove your case when you file your taxes.

Requirements for Interest Deductions on a Cash-Out Refinance

Capital improvements to a property that increase its value will qualify for an interest deduction. Examples could include a new addition, a security system, or a new swimming pool. General maintenance and repairs will not qualify, nor can you deduct the interest you pay on the loan if you spend the money on a vacation, medical bills, or credit card debt.

How to Make a Cash-Out Refinance Tax-Deductible

Below is a list of home improvements that qualify for the interest deduction.

Qualifying Home Improvements

•   Renovating or adding on an addition, such as a garage or a bedroom

•   Putting in a swimming pool

•   New fencing

•   New roof

•   New heating or cooling system

•   Installing efficient windows

•   Installing a home security system

Improving your property’s value means you can also save money if you sell your home. Capital home improvements count toward the total amount you spent on the property and can potentially lessen your capital gains tax liability when you sell your home.

Deductions for Adding a Home Office

Adding a home office to your home is a capital improvement that qualifies for the interest deduction on a cash-out refinancing loan. There are also additional potential tax benefits to adding a home office for small businesses or the self-employed.

How Home Offices Can Impact Your Taxes

You can deduct the interest on your cash-out refinancing loan if you use the money to add a home office, because it will increase the value of your home and is considered a capital improvement. If you are a business owner or self-employed, you could also qualify for the home office deduction on your federal taxes.

The home office deduction is a benefit that allows you to claim a percentage of what you pay on your loan as a business expense. You must use the designated office space for business purposes only, and it cannot be used as a spare bedroom or family space or it will not qualify. Also, your home office must be the primary place where you conduct business.

Recommended: What to Know Before You Deduct Your Home Office

Tax Implications of a Cash-Out Refinance for Rental Property

Rental income is considered personal income by the IRS. If you use the capital from a cash-out refinance to improve or repair a rental property, the expenses are tax-deductible. Also, interest, closing costs, and insurance paid on a rental property can be deducted from your income as business expenses.

What Are the Limitations for Interest Deduction with a Cash-Out Refinance?

For the 2022 tax year, single filers and married couples filing jointly could deduct mortgage interest up to $750,000. Married taxpayers who file separately could deduct up to $375,000 each. (The limit is higher for debts incurred prior to December 16, 2017: $1 million or $500,000 each for married couples filing separately.)

Can You Deduct Your Mortgage Points?

Mortgage points, also known as discount points, are fees you pay a lender upfront so that you can pay a lower interest rate on your loan. One point is equal to 1% of your mortgage loan. With a cash-out refinance, you cannot deduct the money you paid for points in the year you refinanced until after 2025. But you can spread out the cost throughout the loan. That means if you accumulate $2,500 worth of mortgage points on a 15-year refinance, you can deduct around $166 per year throughout the loan.

Risks of a Cash-Out Refinance

Cash-out refinancing is a risk. You are taking on a larger loan than your original home mortgage, which means that your monthly mortgage payment will increase unless interest rates are lower than when you applied for your current mortgage. If your payments are higher and you can’t keep up with them, you could be at greater risk of foreclosure.

Alternatives to a Cash-Out Refinance

Two financing alternatives that also use equity in your home are a home equity loan or a home equity line of credit (HELOC).

A home equity loan is a second mortgage for a fixed amount that you repay over a set period while keeping your original loan. The payments include interest and principal, just like a traditional mortgage, but the interest rate may be higher than a primary mortgage. This is because the primary lender is paid first in the event of foreclosure, so the secondary lender takes on more risk.

A home equity line of credit (HELOC) is also a second mortgage but with a revolving balance. That means you can borrow a certain amount, pay it back, and then borrow again. As with a credit card, your payments are based on how much you use from the line of credit, not on the available credit amount. If you don’t need to borrow a large sum, this might be a cheaper option than cash-out refinancing because a HELOC tends to have a lower interest rate.

Recommended: Home Equity Loans vs HELOCs vs Home Improvement Loans

The Takeaway

Cash-out refinancing is a way to access the equity in your home and use it to pay for expenses, though it does mean taking on increased debt. The cash from this type of mortgage refinancing can be used any way you like, such as to pay for home renovations, college, or unexpected medical expenses.

When you opt for cash-out refinancing, your original mortgage is replaced by a larger mortgage. If interest rates are lower than when you took out your original mortgage, your monthly payments may go down, but it will take you longer to pay off the loan. Depending on how much cash you need, you can also consider a HELOC or a home equity loan to obtain the money you need.

Turn your home equity into cash with a cash-out refi. Pay down high-interest debt, or increase your home’s value with a remodel. Get your rate in a matter of minutes, without affecting your credit score.*

FAQ

Is cash-out refinance tax-deductible?

Some of the interest you pay on a cash-out refinancing loan might be tax deductible if you use the money to make capital improvements on your home and you keep meticulous documentation to prove it. It’s best to consult with a tax professional to make sure the improvements you do on your home qualify for the deduction.

Do you pay taxes on a cash-out refinance?

No. The funds you receive from cash-out refinancing are not subject to tax because the IRS considers refinancing a form of debt restructuring, and the money isn’t categorized as income.

How do I report a cash-out refinance on my tax return?

You don’t need to report the cash you receive from a cash-out refi as income, so the refi would only show up if you record the interest you are paying on the new mortgage on an itemized return.

What are the tax implications of a cash-out refinance on a rental property?

Rental income is taxed as personal income by the IRS. The good news is that if cash from a refinancing is used to improve or repair a rental property, the expenses are tax-deductible. Also, closing costs, interest, and insurance paid on a rental property may also be deductible from your income as business expenses.

How does the timing of a cash-out refinance affect my taxes?

As long as you meet the requirements for capital improvements, you can deduct the interest paid on your refinanced loan every year that you make payments throughout the life of your refinance loan. So, if you refinance your mortgage to a 15-year term, you must spread your deductions over the 15 years. However, you can only deduct the interest you pay each year, and the amount of interest paid will become less as the loan matures and you pay more toward the principal.

Photo credit: iStock/Jun

^*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL0623028

Choosing the right loan can save you anywhere from hundreds to thousands of dollars in costs. So it pays to consider your options before you decide what type of loan you really need.

A personal loan might come with an origination fee and a relatively high interest rate, but a cash-out refinancing loan will entail considerable closing costs. Timing is another concern. If you need funds quickly, a cash-out refinancing loan is probably not an option because approval can take weeks, whereas a personal loan can deliver funds within days.

Here’s a look at the factors to consider when deciding between a personal loan vs. a cash-out refinance. We’ll examine what both types of loans are, why one might be preferable over the other, and offer a side-by-side comparison of the two types of loans so you can make an educated decision.

What Does a Personal Loan Include?

A personal loan is typically an unsecured loan offered by a bank, credit union, or online lender. An unsecured loan is usually not backed by collateral, which means the lender will charge a higher interest rate to cover the cost of their risk. When a personal loan is approved, the borrower receives cash into their bank account, often within one business day, and pays a monthly payment that includes some of the principal and the interest due. The funds from a personal loan can be used for any purpose.

What Is a Cash-Out Mortgage Refinance?

A cash-out mortgage refinance is a type of secured loan that a borrower obtains by using their home as collateral. If you default on the payments, the bank or lender can repossess or foreclose on your home. There is less risk for the lender if the loan is backed by collateral, so the interest rates are lower.

With a cash-out mortgage refinance, the loan amount has to be large enough to pay off your existing mortgage and provide you with a certain amount of cash. So, it’s likely to be a large loan.

To determine whether or not you qualify for a cash-out mortgage refinance, a lender will look at your income, employment, debt, property value, and credit history. These factors will also help decide your loan terms, should you qualify. As with a personal loan or a home mortgage loan, you will make monthly payments that include some of the principal and the interest due. There are no restrictions on how you use the money with this loan either.

💡 Quick Tip: There are two basic types of mortgage refinancing: cash-out and rate-and-term. A cash-out refinance loan means getting a larger loan than what you currently owe, while a rate-and-term refinance replaces your existing mortgage with a new one with different terms.

Cash-Out Refinance vs Personal Loan: A Comparison

If you’re contemplating the repercussions of taking out a mortgage refinance loan compared to a personal loan, critical factors to consider are collateral, interest rates, how quickly you will have access to funds, and closing costs. Below is a side-by-side comparison of the main factors likely to influence your decision.

Home Equity and Collateral

Deciding whether to take out an unsecured personal loan or a secured cash-out refinancing comes down to how much equity you have in your home, how quickly you need the funds, and which type of loan will be cheaper. Making the right decision requires understanding the interest rates and terms you would qualify for with each type of loan. Also know that you risk losing your home if you choose cash-out refinancing but fail to make the payments.

To refinance your home and take cash out with a loan, a lender will require you to keep 20% equity, which limits your new loan amount to 80% of your home’s appraised value. A personal loan puts no limits on the amount you can borrow, except for those dictated by the bank.

Cost and Interest Rates

The cost of a loan, whether a personal or home loan, is largely determined by interest rates. The interest rate you receive on a mortgage loan vs. a personal loan will depend on whether you meet or exceed the minimum credit score for a personal loan, as well as on your income and the loan amount.

Personal loans, because they are unsecured, have higher interest rates than home loans. Credit card financing could be an option, but credit cards are typically even more expensive. People often use a personal loan or a cash-out refinance to consolidate debt and pay off credit cards.

Speed of Approval and Funding

How soon you receive funding varies significantly between the two types of loans. The application for a personal loan is often completed online, and if you are approved for a mortgage, you could receive funding within days, sometimes as fast as one business day. The home mortgage loan application process requires significant documentation, such as underwriting, an appraisal, and legal documents, and can take weeks.

Loan Amount

The loan amount for a personal loan varies. Some banks will offer loans as low as $600 or as high as $100,000. Most lenders set a minimum around $5,000 and a maximum around $50,000. Cash-out refinancing home loans, however, tend to be much larger, and they depend on your equity and the value of your home. As noted above, you can typically take out a new loan for up to 80% of the value of your home.

Closing Costs and Loan Fees

Many personal loans have a relatively small origination fee and no closing costs. The fees for any loan will depend on the lender. But you can bet on a fee in the range of 0 to 5% for a personal loan.

Mortgage loans tend to be much larger, and closing costs and fees can range from 3% to 6% for a cash-out refinancing loan. The originator of the home loan charges fees to cover origination, document processing, and underwriting.

As an example, if you needed to borrow $10,000, you might pay around $500 in fees for a personal loan. If you chose cash-out refinancing, you’d have to borrow $10,000 plus the amount of your mortgage balance. If your mortgage balance is $150,000, you’d pay closing costs on $160,000, which could be as much as $5,000.

Length of Repayment Period

Repayment terms for a home refinancing loan will be longer than the terms for a personal loan because the loan amount will be higher. The repayment period for a personal loan is typically from one to five years. Home loan terms range from 15 to 30 years. A few lenders will offer a 10-year term.

Eligibility for Tax Benefits

You might be eligible for tax benefits for a cash-out refinancing loan. It’s worth noting that a borrower doesn’t need to report cash received from a cash-out refinancing loan as income, because it is considered a form of debt. You might also be able to deduct your interest if you used the cash to make improvements to your home, but you will need to keep receipts and records to show the work that you did. A tax professional can help you determine if you qualify for this benefit.

💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

The Takeaway

If you need funds and are trying to decide between a personal loan or a cash-out refinancing loan, the main factors to consider are how much money you need, how soon you need it, and how much you can afford to spend each month to pay off the loan.

Personal loans are typically the best option if you want to borrow a few thousand or less and you need the funds quickly. On the other hand, a cash-out refinancing loan is best if you want to borrow a larger amount and spread the payments over a longer period. With both options, your credit score will drop if you miss payments, and with a cash-out refinancing loan, you also risk your home falling into foreclosure if you cannot meet your monthly payment obligations.

Turn your home equity into cash with a cash-out refi. Pay down high-interest debt, or increase your home’s value with a remodel. Get your rate in a matter of minutes, without affecting your credit score.*

FAQ

Can I use a personal loan or a cash-out refinance to pay off my mortgage early?

You can use personal loans and cash from a refinancing to pay for anything you like. People often use both types of loans to pay off credit card debt or student loans, or to fund home improvements, because the interest rates and total cost of the loan might be a cheaper option.

How do I determine if the terms of a personal loan or a cash-out refinance are right for me?

To decide whether to use a personal loan or to refinance, consider your priorities. For example, a mortgage refinancing would be better if you want lower monthly payments spread out over a longer period. If you only want to borrow a few thousand dollars, a personal loan would be better because there are no closing costs. Also, consider if you want to use your home as collateral.

Can I get a personal loan or a cash-out refinance if I am self-employed?

Yes, as long as you can document a regular and reliable source of income and meet other qualifications set out by the lender, being self-employed shouldn’t affect your ability to qualify for a personal loan or a cash-out mortgage refinancing loan.

What are the consequences of missing a payment on a personal loan or a cash-out refinance?

Missing payments on a personal loan will cause you to incur late fees and may reduce your credit score significantly. The same is true if you miss payments on a refinance loan, however in this case you could also be at risk of foreclosure if you miss payments repeatedly.

Photo credit: iStock/urbazon

^*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL0623027