Refinance
Cash-Out Refinance
Convert equity you have built into cash, for a renovation, to consolidate higher-interest debt, or to put to work elsewhere.
How a cash-out refinance works
A cash-out refinance replaces your mortgage with a larger one and gives you the difference in cash. If your home is worth considerably more than you owe, that equity is real money you can access without selling.
You are borrowing more, secured by your home, and extending it over a long term. That is a good trade in some situations and a poor one in others. Replacing high-interest credit card debt with mortgage debt can save a great deal of money, provided the cards do not simply fill back up. Funding a renovation that adds lasting value is usually defensible. Funding something that depreciates rarely is.
Lenders limit how much of your equity you can access, and those limits vary by loan type and by lender. This is one of the areas where shopping the loan across several lenders makes a real difference to what is available to you.
FAQ
Cash-Out Refinance questions
How much equity can I actually access?
Lenders cap this as a percentage of your home value, and the cap varies by program and by lender. Because it varies, it is worth having someone shop it rather than accepting the first answer.
Is a cash-out refinance better than a home equity loan?
It depends on your current rate. If your existing mortgage rate is attractive, replacing the whole loan to access equity may cost more than a second lien would. If your current rate is high anyway, a cash-out refinance often wins. This is exactly the comparison to run before deciding.
Can I use the cash for anything?
Generally yes, though the lender will ask about purpose during the application. The more important question is whether the use justifies securing that borrowing against your home.
Does taking cash out affect my rate?
Cash-out refinances are typically priced differently from rate-and-term refinances because the lender views them as carrying more risk. The difference varies between lenders, which is another reason to compare.
Run your actual numbers.
Break-even, closing costs, what it saves. Fifteen minutes, no credit pull.