What Is Cash-Out Mortgage Refinancing?
A cash-out refinance replaces an existing mortgage with a new loan with a higher balance, sometimes with more favorable terms than the current loan. The difference between these two loans is provided to the homeowner as cash.
A cash-out refinance differs from a traditional mortgage refinancing, which simply replaces your current loan with a new loan that has a new set of terms and in many cases, a lower interest rate.
A cash-out refinance also differs from a home equity line of credit (HELOC), which allows you to borrow cash using the home-equity as collateral. HELOCs function as a second mortgage, with the borrower withdrawing and repaying funds on a more flexible schedule, and the government allowing a tax deduction for interest payments. Unlike traditional first or second mortgages, a HELOC interest rate is not fixed; the rate varies from month to month with the prime rate.
Cash-Out Mortgage Refinancing Advantages
Cash-Out Mortgage Refinancing Disadvantages