What is a cash-out refinance?, you'll still replace your old mortgage with a new one that has different terms. But you'll actually take out a loan larger than what you have left to pay on the home so you can receive the surplus in cash.
A cash-out refinance can be a good option if you've built equity in your home. A lender typically won't let you receive more than 80% of your home's value in cash, so you'll keep at least 20% equity in the home. Let's say your home is valued at $200,000, and you have $100,000 left to pay on your initial mortgage. This means you have $100,000 in home equity, or 50% of the home value.
If you need to keep 20% of your equity in the home, then you're eligible to take out 30% of the value in cash, or $60,000. You refinance into a mortgage for $160,000 — that's $100,000 that you already owed on the home, and $60,000 in cash.The pros of a rate-and-term refinance
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