What is cash-out refinancing?

Cash out refinance loans replace your current home loan with a bigger mortgage, allowing you to take advantage of the equity you’ve built up in your home and access the difference between the two mortgages (your current one and the new one) in cash. The cash can go towards virtually any purpose, such as home remodeling, consolidating high-interest debt or other financial goals.

How cash-out refinance loans works

The process for a cash-out refinance is similar to a rate-and-term refinance of a mortgage, in which you simply replace your existing loan with a new one for the same amount, usually at a lower interest rate or for a shorter loan term, or both. In a cash-out refinance, you can do the same, and withdraw a portion of your home’s equity in a lump sum. “Cash-out refinancing is beneficial if you can reduce the interest rate on your primary mortgage and make good use of the funds you take out,” says Greg McBride, CFA, Bankrate chief financial analyst.