Cash-Out Refinance

Full definition

In a cash-out refinance, you replace an existing loan with a new, larger loan. The new loan pays off the old balance, and you receive the difference between the new loan amount and the payoff amount in cash. Mortgage cash-out refinance (the most common form): A homeowner with a $150,000 mortgage and a home worth $300,000 refinances into a $200,000 mortgage. After paying off the $150,000 balance, they receive $50,000 cash (minus closing costs). The new mortgage may have a different rate, term, and monthly payment. This allows homeowners to tap home equity without a second mortgage or HELOC. Personal loan cash-out refinance: If you have an existing personal loan with a $5,000 balance and you need an additional $3,000, you could refinance into a new $8,000 personal loan. The new loan pays off the $5,000 balance, and you receive $3,000 in cash. The new loan may have a different rate (better or worse depending on your current credit vs when you originally borrowed) and a fresh term. When a personal loan cash-out refi makes sense: Your credit score has improved significantly since the original loan (rate will be better). You have a legitimate need for additional funds but prefer one payment vs two loans. The new rate on the larger amount is lower than taking a separate second personal loan. Risks: You extend the repayment timeline on the amount you already owed, potentially paying more total interest on the original balance. If the rate is higher than your original loan (credit has worsened), you are refinancing at a loss on the existing debt. Consider the total interest cost (original balance at original rate vs same balance at new rate) before proceeding.

• Refinance
• HELOC (Home Equity Line of Credit)
• Home equity loan
• Loan term