Cash Out Refinance

Cash out refinancing is basically a do over. You completely refinance your home and take any equity as cash out.

For example: Let’s say you owe $150,000 on a $200,000 house. You may be able liquidate that equity with a cash out refinance if the loan is more than $150,000.

You discover your lender will refinance your mortgage for $180,000. That will pay off your existing mortgage of $150,000and leave you $30,000 in cash out. The refinance will be for $180,000 instead of the $150,000 you had previously.

Cash Out Refinancing is Different than a Home Equity Loan

• A cash out refinance is a replacement of your first mortgage
• The interest rates can be lower on a cash out refinance than a home equity loan
• A home equity loan is in addition to your first mortgage

Reasons for Cash Out Refinancing

There are two main reasons to do a cash out refinancing:

• Cash- You want some cash out of your home. You may want to use it to pay for college, debt consolidation, a vacation or home improvements

• Interest Rate- Maybe there are interest rates on loans on the market now that are less than the loan you have. Generally, if you can get a rate more than a point lower, it may be worth it to consider refinancing. You might also be able to adjust the terms of the loan to a longer period of years, making your payments smaller.

Another feature of this approach is that the interest is tax deductible just like the mortgage it replaced.

Steve Wyrostek -HomeLoans.org Expert A 20 year plus veteran of the insurance industry, Steve managed departments in the personal and commercial lines areas of major insurers. He’s familiar with how insurance—ranging from boat to workers compensation—works.