Cash-Out Mortgage Refinancing

Your home can be a significant source of accessible funds if you’re willing to trade some of your equity for liquidity. One effective way to unlock this cash is through cash-out mortgage refinancing.

What is Cash-Out Mortgage Refinancing?

Cash-out refinancing allows you to refinance your mortgage for an amount greater than what you currently owe, allowing you to pocket the difference. If you’ve been paying down your mortgage for a while, your principal is likely much lower than when you first took out the loan. This accumulated equity enables you to secure a loan that covers your outstanding balance—plus an additional amount.

For example, if you owe $90,000 on a $180,000 home and want to add a family room costing $30,000, you could refinance your mortgage for $120,000. The bank would then give you a check for the $30,000 difference.

You can use this cash for various needs, such as home renovations, purchasing a second property, paying tuition, consolidating debt, or any other purpose requiring a substantial sum of money. Additionally, you may be able to secure a lower interest rate on your refinanced mortgage.

However, if the interest rate on your new mortgage is higher than your current rate, cash-out refinancing might not be the best option. In such cases, a home equity loan or line of credit (HELOC) might be more suitable.

Typically, homeowners can refinance up to 100 percent of their property’s value. However, if you borrow more than 80 percent of your home’s value, you may be required to pay private mortgage insurance (PMI) or face a higher interest rate.

For more information on cash-out refinancing, visit LendingTree.