What is Cash-Out Refinancing?

With so many different types of mortgage solutions, many consumers select a mortgage type that is not compatible with their specific needs. Whether you are looking to refinance your home mortgage in order to obtain a better interest rate than your original home loan, or you have owned your home for some time and would like to take advantage of the equity you have built up: cash-out refinancing might be the answer you are looking for.

I know what you're thinking…so what is it exactly that makes cash-out refinancing such an attractive alternative to traditional refinancing? In order to answer that question, let us first examine the primary difference between cash-out refinancing and other traditional forms of mortgage lending:

typical refinance mortgage can many times offer you a better interest rate than you secured on your original mortgage. A cash-out refinance loan offers you the same benefit of a lower rate of interest along with the additional advantage that you receive a lump sum of cash once the loan closes.

2. A home equity loan is another alternative to a cash-out refinance loan that does offer you the ability to cash-in on the equity you have built in your home. However, it is important to realize that a home equity loan is not actually a mortgage, it is a separate loan secured by the equity in your home without taking the place of your initial mortgage. Cash-out refinancing on the other hand, is a completely new loan which takes the place of your original mortgage. This means that each month, you will conveniently have one (typically lower) payment rather than a home equity loan payment on top of your monthly mortgage payment.

3. Many times, a cash-out refinance loan can offer you a better interest rate than a home equity loan because it is a type of mortgage loan rather than a personal loan or home-improvement loan.

4. A cash-out refinance loan accomplishes two things at once. When you choose to take a cash-out refinance loan, you are actually refinancing your mortgage while at the same time, you are able to receive a lump sum of cash from the equity you have built up in your home.

A cash-out refinance loan basically offers homeowners the opportunity to enjoy the benefits of refinancing while at the same time pocketing the cash for the equity they have built-up in their homes. This cash can be used however they would like: sending a child to school, purchasing the luxury car they have dreamed of owning, unexpected medical bills, home improvements-anything!

How it works:

When you own your home over a period of time, or even if you have owned you home for a short period of time and the value of your home has risen, you have built up equity. Equity is the monetary value of the percentage of the property that you actually own.

If you choose to take a cash-out refinance option, you refinance your original mortgage for the amount that you owe plus a lump sum based on the total appraised value of your home and pocket the difference.

Sound simple? It is! If you are considering refinancing, or could just use some extra cash and you own your home, talk to your loan officer today and find out if a cash-out refinancing option is the right loan for you!