A Cash-Out Refinance allows you to take out a new home loan for more money than you owe on your current mortgage and accept the difference in cash. This enables you to access some of the equity you’ve accrued as a homeowner.
Cash-Out Refinance vs. Home Equity Loan
Unlike a Cash-Out Refinance, a Home Equity Loan or Home Equity Line of Credit (HELOC) is a second mortgage rather than a new first mortgage. In other words, with a Home Equity Loan or HELOC, you will have two mortgages on your property; in all likelihood, it will have a higher interest rate than your first mortgage due to the fact that it will be held in a second lien position against the property.
Alternatively, a Cash-Out Refinance refinances your current loan under new terms, so it’s not a second mortgage, but merely a new first mortgage. Benefits of Cash-Out Refinances include possibly lower rates and simpler terms since the cash out is provided on the loan in the first lien position on the home, and a second mortgage is not applicable.
For further information about the differences between Cash-Out Refinance and our Home Equity Loans, please visit our Home Equity Product Comparison page.