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Cashing In with Cash-out Refinancing

by Kristi  Shibata
Mortgage Directory Columnist

Do you have the urge to swap some of your home equity for cash? If your property has increased in value since your original purchase or you have significantly paid down your mortgage you may qualify for a cash-out refinance option.

Determining if Cash-Out Refinancing is Right for You

Cash-out refinancing involves replacing your current home mortgage with a larger one and receiving the excess in cash at closing. The new loan pays off your current mortgage and delivers cash to spend as you like.

Replacing your existing mortgage and taking out cash is an appropriate option when you can improve on the terms of your current mortgage and expect to be in your home long enough to recoup the cost of refinancing. If you already have a good mortgage, a low-cost home equity loan or home equity line of credit (HELOC) can provide the funds you seek without affecting your current first mortgage.

The Differences between Cash-Out Refinancing and Home Equity Loans

There are key differences in understanding ways to tap into home equity:
  • Cash-out refinancing involves replacing your current mortgage. Home equity loans and lines of credit (also called second mortgages) are additional loans positioned behind your existing mortgage.
  • Interest rates for cash-out first mortgages are generally lower than home equity loans.
  • Closing costs tend to be much lower for home equity loans than for refinancing.
Choosing the best loan to get cash from your home means doing some research. Online mortgage calculators can help determine which type of loan best meets your objectives, and it's easy to use the Internet to compare offerings of various lenders and find the best deal.

Federal Housing Administration

About the Author
Kristi Shibata is a public relations and communication specialist and regular Mortgage Directory columnist. She graduated from University of California, San Diego, with a BA in Communications.

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