If you've built up a large amount of equity in your home and want to use it to meet some of your financial goals, a cash-out refinance might be right for you. As your home equity increases, a refinance can provide cash for major expenses. Maybe it's time to invest in your house with a new roof, new floors or a more efficient heating system. Perhaps you can finally put in that kitchen you've dreamed about. Or maybe you want to use it for a down payment to buy that family vacation home or investment property you've always wanted.
What is a cash-out refinance mortgage and how does it work?
A cash-out refinance is when you take out a new home mortgage for more money than what you owe on your current loan, and receive the difference in cash. Let's say your home is worth $400,000 and you owe $250,000. That would mean you have $150,000 in home equity. With a cash out refinance, you could access a portion of that available home equity in cash, and add that amount to the principal when you refinance into a new home loan. So, continuing on with the same example shown above - if you wanted to access $50,000 of your available $150,000 in home equity in cash, the principal on your new mortgage after the cash out refinance would be $300,000.
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