In simple terms, a cash-out refinance replaces your current mortgage with another loan that:
- Pays off your current mortgage balance
- Uses the equity in your home to provide additional funds for other purposes
A cash-out refinance is a way to both refinance your mortgage and borrow money at the same time. You refinance your mortgage and receive a check at closing. The balance owed on your new mortgage will be higher than your old one by the amount of that check, plus any closing costs rolled into the loan.
It’s sort of like “backing up” your mortgage by taking out some of the money you’ve paid into it and increasing the mortgage principle owed as a result.
Cash-out refinancing is basically a combination of refinancing and a home equity loan. You can borrow the money you need, as with a home equity loan or line of credit (HELOC).
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