Homeownership is like America’s piggy bank. Collectively, millions of Americans have trillions of dollars invested in their homes. And each month, with each mortgage payment, homeowners invest a bit more. But should the need arise, they can also break into the piggy bank – tapping the home equity they’ve built up over time through a cash-out refinancing of their mortgage.
Cash-out refinancing works by replacing your mortgage with a new one whose amount is higher than what you currently owe. That way, you get cash to use for other purposes. A second type of refinancing, known as rate-and-term refinancing, is used by homeowners who are looking for better mortgage terms but aren’t looking to pocket extra cash. For more, read “When and How to Refinance a Home Loan.”
Most mortgage refinancing is cash-out refinancing. This primer lays out why some people do cash-out refinancing, why others don’t, and what you should ask yourself before refinancing.