by Christy Bieber | May 11, 2021
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
A cash-out refinance loan offered some benefits I couldn't pass up.
Not too long ago, I decided to tap into the equity in my house. I had paid down quite a bit of my mortgage loan and wanted to put some of that money towards other financial goals.
There are a few different ways to do that. For example, I could have taken out a home equity loan or line of credit. But I went another route instead with a cash-out refinance loan. Here's why.
Get free access to the select products we use to help us conquer our money goals. These fully-vetted picks could be the solution to help increase your credit score, to invest more profitably, to build an emergency fund, and much more.
By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.
First things first, it's important to understand the difference between a cash-out refinance loan and a home equity loan.
A cash-out refinance loan involves taking out an entirely new mortgage with different terms. You'd then use part of the proceeds to repay your current loan. It's called a "cash out refinance" because you borrow more than you currently owe. You'd cover your existing balance and still have some extra cash.
For example, let's say owe $300,000 on your mortgage and take a cash-out refinance loan of $350,000. You'd use $300,000 to pay off your existing loan and walk away with the extra $50,000.
Home equity loans or lines of credit work differently. These types of loans don't impact your existing mortgage. You are simply taking an additional loan that's also guaranteed by the value of your home.
So while both let you tap into equity, they are very different financial products.
There are a few key reasons I chose a cash-out refinance loan when I wanted to take money out of my home:
Of course, there is a downside. I'll be paying off the refinance loan for longer than I would have with a home equity loan or line of credit. This could theoretically mean more interest costs in total, despite the fact I qualified for a loan at a lower rate.
Ultimately the major benefits of a cash-out refinance loan made this the right choice for me. And if you want to tap into the equity in your home, it's worth considering this option too -- as long as you can drop the interest rate on your current loan in the process.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
The Ascent's in-house mortgages expert recommends this company to find a low rate - and in fact he used them himself to refi (twice!). Click here to learn more and see your rate. While it doesn't influence our opinions of products, we do receive compensation from partners whose offers appear here. We're on your side, always. See The Ascent's full advertiser disclosure here.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.