Cash-out refinancing

Cash-out refinancing is a great option for borrowers who are interested in financing other purchases by leveraging their mortgage. The process, simply described, pays your small mortgage with a larger, new mortgage. The difference is given to the borrower in cash, which can then be put to use in a number of different ways.

The cash-out system basically allows you to take the best mortgage rate and pass along the savings to other areas of your financial life.

Consider the following example as an illustration of this principle at work. Mark begins with a $200,000 mortgage. Over time, as his principal decreases to $50,000, he is able to accumulate $150,000 in home equity. Mark decides to return to school for an advanced degree. To finance the expensive tuition, decides to take advantage of a cash-out refinance. Mark obtains a new mortgage for $150,000, leaving him with $100,000 cash. As a result, the best mortgage rate is converted into the best school loan rate. In other words, he finances his education by using his home equity.

To review: cash-out refinancing is an excellent option for borrowers who want to apply the low interest rate of their home mortgage toward another purchase. Tuition is just one example of what this purchase could be; other people might remodel their homes, or even purchase a vacation home. Cash-out refinance is cheaper than a credit card and carries lower interest rates than personal loans.

Of course, you can process this type of refinancing with the lender of your choice, but a good starting point is your current lender. If they originally helped you find the best mortgage rate, chances are they again will be helpful in the future.