What is a Cash-Out Refinance?

A cash out refinance is a mortgage refinance that not only reworks the remaining balance on an old loan, but also provides a cash payment to the homeowner for all or a portion of the equity in the home. There are also similar loans that can provide homeowners with most of the benefits of a cash out refinance.

Cash out refinance loans often result in more favorable terms for the homeowner, especially if other financial obligations are folded in. This is especially so if the interest rates charged on a cash out refinance are better than the existing home loan.

What Cash Out Refinances Are Used For

There are a number of reasons why homeowners seek out cash out refinance loans. They include:

  • Debt consolidation
  • Home improvements
  • Personal purchase needs

Money from a cash out refinance can be used for just about anything a homeowner desires. Debt consolidation is one of the more popular reasons to take out this type of loan because the resulting combined payment is often more financially favorable.

Options to a Cash Out Refinance

Rather than completely rework a mortgage to enjoy access to equity, some homeowners seek alternatives. A home equity line of credit, for example, is a loan that enables homeowners to borrow against equity without rewriting the original mortgage. Heloc loans have varying terms and frequently operate much like a revolving line of credit.