Cash Out Mortgage Refinancing - An Affordable Alternative to Home Equity Loans

If you're considering a Home Equity Line of Credit or a Second Mortgage for borrowing against your home equity, cash out mortgage refinancing could save you a lot of money. What is cash out mortgage refinancing and is a new mortgage right for your financial situation? Here are several tips to help you decide if cash out mortgage refinancing is right for you.

Cash Out Mortgage Refinancing Basics

Mortgage refinancing with cash back simply means you are taking out more than you owe on your existing loan and pocketing the difference at closing. The equity you have in your home is the difference between the appraised value of your home and the existing balance of your mortgage. The amount of equity you have in your home and how much you plan on taking out affects the interest rate you qualify for when mortgage refinancing.

Suppose you owe $80,000 on a $200,000 home and want to borrow $40,000 to renovate your home. You could refinance for $100,000 and receive $20,000 cash at closing. You can actually use this money for any reason you like and the interest rate will generally be more favorable than what you would get with a Second Mortgage or Home Equity Line of Credit.

Cash Out Mortgage Refinancing Vs. Home Equity Loans

When you refinance your mortgage with cash back, you are wiping out your existing mortgage and taking out a new loan. One advantage of cash back refinancing is that you only have one monthly payment. Home Equity Lines of Credit and Second Mortgages each have their own monthly payment. If you fall behind on either loan the lenders will foreclose and take your home.

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