What is Cash-Out Refinance?

A cash-out refinance is a way to replace your current mortgage with a new one under new terms and get an additional lump sum of cash in the process. On the granular level, this means you’re taking out a new loan for more than your current mortgage balance using the equity and new appraised value. The new loan replaces your existing loan, and you receive the difference of your old loan’s equity plus the new appraised value (minus closing costs).

Understanding the difference between a refinance and a cash-out refinance.

Whenever you refinance, you’re starting over with a new mortgage that has different terms. Any of those goals can be accomplished without changing the amount borrowed.

In contrast, with a cash-out refinance, you’re getting a new loan that’s for more than you owe on your current mortgage. The difference between your new loan amount and what’s owed is where you get the “cash out.” How much cash depends upon your home equity and how much your home is worth compared to how much you owe.

What are the benefits of a Cash-Out Refinance?

• Use the payout to purchase an investment property.
• Use the payout to cover personal/medical expenses.
• Use the payout to pay off student loans or debts.
• Change the length of the mortgage.
• Get a new interest rate.
• Add or remove a borrower.
• Use the payout for renovations.