QandAs: Loans

What is Cash Out Refinancing?

Answer:
If you need cash for debt consolidation or a home improvement

project, cash out refinancing is a great option. Cash out refinancing differs from a home equity loan. While both options let homeowners borrow money using their home’s equity as collateral, a refinancing creates an entirely new mortgage loan.

Therefore, borrowers must complete a mortgage loan application and repeat the initial home loan process. The new home loan pays off the old mortgage. In turn, homeowners can tap into their equity and acquire a lump sum of money, which can be used for a variety of purposes.

Cash out refinancing is perfect for anyone who needs extra cash to pay off high interest credit cards, make home improvements, and so forth. In many instances, cash out options increase the original mortgage balance. Although homeowners borrow their own equity, the money must be repaid to the home loan lender.

Hence, the cash out amount is included within the new home loan amount. For example, if the original mortgage balance is $100,000, and the homeowner borrows $20,000 from their equity, the new mortgage balance is $120,000. Prior to cash out refinancing, borrowers must assess whether they can afford a higher monthly payment.


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