What is Cash-Out Refinancing?

If your home value has increased or if you have built up equity in your home, Cash-out refinancing might be an interesting option for you.

With a cash-out refinance, you sign up for a bigger mortgage loan, pay off your current mortgage with it, and then pocket the extra cash as a lump sum.

Pro and cons of Cash-Out Refinancing

Pros of Cash-Out Refinancing

1. Cash-out refinancing provides a lump sum of cash that can be used for various purposes, such as paying off debt, financing home improvements, or covering unexpected expenses.
2. You may be able to secure a lower interest rate on your new loan, which can save you money on your monthly mortgage payments.
3. Cash-out refinancing can help you consolidate debt and simplify your finances by combining multiple loans into one.

Cons of Cash-Out Refinancing

1. A cash-out refinance is a secured loan with your house as coleteral, so you risk losing your home if you’re unable to repay the loan.
2. Cash-out refinancing often involves fees and closing costs, which can add up quickly.
3. You may be extending the life of your loan, which can mean paying more in interest over time.

Alternatives could be a home equity loan or HELOC. Depending on your goals, you may also want to consider a regular line of credit or a personal loan.