Cash-out refinancing: the old mortgage is replaced

Cash-out refinancing can turn home equity into available funds, but it also replaces the mortgage you already have.

Here is the basic tradeoff: you apply for a new mortgage larger than your current balance. The new loan pays off the old one, and the difference—after applicable costs—may be provided as cash. You now have a new interest rate, a new payment, and a new payoff timeline.

That can be useful for a planned purpose, but compare more than the cash you receive. If the new rate is higher than your current rate, interest costs may rise. A longer term can lower the required payment while extending repayment and potentially increasing total interest. Closing costs also affect the break-even point. If costs are added to the loan, the balance grows and your equity falls.

Remember, the home secures the debt. Converting other debt into mortgage debt can put the home at risk if payments become unaffordable. Ask for written terms, compare the new loan with a home-equity loan or HELOC, and consider how long you expect to keep the mortgage.

Important notes

• Educational information only; not legal, tax, financial, or individualized mortgage advice.
• A cash-out refinance is not automatically cheaper or better than a HELOC or home-equity loan. Rates, fees, payment, eligibility, products, and terms vary by borrower, property, lender, transaction, and jurisdiction.
• No approval, rate, payment, savings, closing-speed, equity, or outcome promise is made. The home may be at risk if the secured debt cannot be repaid.
• Do not collect Social Security numbers, income records, bank statements, or other borrower financial data through comments, social media, or an unapproved form. Use an approved employer application system only if the consumer later chooses to apply.