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Cash-out refinancing is an easy to understand form of borrowing. With cash-out refinancing, you refinance your current mortgage for more than what you owe and take the difference in cash. Say you owe $120,000 on a home worth $200,000; you could refinance the mortgage for $150,000, paying off the old mortgage with $120,000 while putting the additional $30,000 in your pocket.
Then, of course, you would start making payments on the $150,000 mortgage.
Why would you choose cash-out refinancing?
While they may seem similar, cash-out refinancing is different from getting a home equity loan or a home equity line of credit. Both result in cash in your pocket, but:
Cash-Out Refinancing: The Pros
Cash-Out Refinancing: The Cons
Here are a few simple scenarios that might help you decide whether cash-out refinancing is right for you: