Mortgage Dictionary -> Cash-out refinance
If you're thinking about using your home to get enough cash to pay off credit card debt or pay for other things, you've probably heard about refinancing with the intent of cashing-out. However, you may not know what exactly this means, and how exactly it works. That's why you'll learn a bit more about the cash-out refinance here so that you're able to decide what's best for your financial situation.
What is the Cash-Out Refinance?
A cash-out refinance occurs when you take out a loan to pay off your mortgage and the loan covers not only the cost of the original mortgage, but also allows for some left over money. This left over money is the "cash" and can be used on whatever you wish. This is the biggest difference between traditional refinancing of mortgages and cash-out refinancing of mortgages, as the former only covers the cost of the original loan, while the latter has some left over money.
How Does It Work?
The cash-out refinance mortgage loan is as simple as you agreeing with the lender on an amount that both covers the original loan's costs and allows for some money to be left over. Once the loan is finalized, you are then given a check from the lender for the left over amount and this cash can be used for whatever you might want to use it on.
Why to Cash-Out Refinance?
There are actually a lot of good reasons for why to cash-out refinance your existing mortgage loan. The first is that it gives you extra money to pay off things such as credit card debt (which can hinder your credit score), car loans, medical bills or even extra spending money. You then have flexibility when it comes to repaying this extra part of the loan.
The second good reason why to cash-out refinance is that it generally lowers your interest rate and thus lowers your monthly payments on your mortgage. So if you got your mortgage before the lowering of interest rates over the past few years, you'll see substantial savings when refinancing the mortgage.