Understanding Cash Out Mortgages
Homeowners today have many options when it comes to turning their home equity into credit and cash. Options include reverse mortgages, home equity lines of credit, and home equity loans (second mortgages). However, a cash out refinance or cash out mortgage is also a very viable option and is gaining in popularity due to its great terms.
What is a Cash Out Mortgage?
In simple terms, a cash out refinance is when you refinance your mortgage for more than you owe. You get the difference to do with what you want. For instance, you owe $250,000 on your $500,000 home and you want a lower interest rate. You also want $30,000 in cash for home improvements or your child’s college education. You refinance your mortgage for $280,000. Typically, you will receive a better interest rate on the $250,000 that you still owe on your home and you receive the remaining $30,000 to do with as you please.
How is a Cash Out Mortgage Different from a Home Equity Loan?
There are several distinct differences between a cash out mortgage and a home equity loan although they look very similar.