Cash-out refinance

When home owners apply for a new, larger loan with the purpose of paying off their present loan and pocketing the difference

Cash-out refinancing lets you take advantage of the equity that you’ve built over the years and free up some cash to remodel your kitchen, pay your children’s college tuition or pay off your credit card bills. Usually you refinance when interest rates are lower than your current loan so you lower your monthly payments. Depending on the lender, you can get 80%, and in some cases more, of your home’s value.

Example: How can you use cash-out refinance to renovate your home?

Linda wants to remodel her entire living room. Her home is worth $200,000 and the mortgage balance is $125,000. Linda can refinance for $150,000, use $125,000 to pay off her current loan and have $25,000 available to get that fireplace she always wanted.