A cash-out refinance lets you tap your home equity to get the cash you need.  It can be a great way to pay for home improvements, consolidate debt, or make a large purchase. 

How cash-out refinancing works

A cash-out refinance replaces your current mortgage with a new loan for a higher balance.  Your new mortgage pays off your old one, and you receive the remaining loan amount in cash.  That cash comes out of the equity you've built in your home. 

Because it lets you borrow from your equity, a cash-out refinance is similar to a home equity loan.  The major difference is that a home equity loan doesn't pay off your first mortgage ? it gives you just the cash you need, which you repay along with your mortgage. 

Benefits of cash-out refinancing

Borrowing against the equity you've built in your home is generally cheaper than other types of financing, and it has tax advantages as well.*  Credit cards and personal loans usually have much higher rates than home loans, and the interest isn't tax-deductible. 

A cash-out refinance may also reduce your monthly mortgage payments, if the loan term is longer than the remaining term on your existing mortgage.  Depending on the new interest rate and loan balance, you may be able to save money each month by spreading out your payments over a longer period of time. 

 *Consult your tax advisor.