A refinance with cash out is a way of getting money out your your home, the equity, by way of a remortgage. Your replace your existing mortgage with a larger one, repay the current mortgage in full, and keep the remainder of the sum borrowed. You can then use this freed up equity how you wish. Remodel the house? Add an extension to the home, with an extra bedroom, for the new child on the way? It is your choice.

Refinancing with cash out allows you access to previously untouchable equity in your equity. Equity is the capital value built up over time as your property increased in value after your bought it, and also reflects the reducing value of your existing mortgage as you made payments to reduce its value.

Cash out refinance means that you would borrow more than your existing mortgage, repay the current mortgage and then keep the spare funds that remain. For example, your home is worth $150,000 and has an outstanding first mortgage of $80,000. You could refinance with a new mortgage for $110,000, clear the current mortgage and have $30,000 in cash available.

It is important to understand that you will then be repaying a larger debt and if this is done over the same duration that remains on your current mortgage, then the payments will most certainly be more expensive each month. That may be fine during good times, but if you or some close to you suffers a job loss or medical illness, either of these quite common events could put extra financial pressure on you and the added stress of a larger mortgage payment could be the straw that breaks the camel’s back.

Refinance with cash out can be a useful tool if you have a real need to release equity from your home without being forced to sell it to do so. The interest cost can be lower than with an equity release or home equity loan. Take your time deciding what is your best way to proceed.