A cash out refinance is a new loan that pays off your old one, but gives you more cash at closing than what you owe.
It’s different from a home equity loan, because the amount of money owed doesn’t change. If you have $100,000 in debt on your first mortgage, then get a second mortgage to pay off the first one and get $30k as cash back, you’ll still owe $70k on your second mortgage. However, if you’re able to pay off both with one check (or write two checks), then this is called “cashing out.”
You might be wondering why anyone would want to do this? Well there are plenty of reasons:
You can use it for debt consolidation or debt reduction! Paying off higher interest credit cards with lower interest second mortgages is always better than carrying balances month after month; even better if there’s no balance transfer fee involved!
You could use cash out refinance to acquire a new property! Why buy an empty lot when we can build our dream home for less money by using funds from our existing house?
A home equity loan is similar to a second mortgage, in that it also uses your home’s equity as collateral for the loan.
The main difference between a home equity loan and a second mortgage is that with a home equity loan, you have more than one loan at a time. A second mortgage is like a first mortgage, except it’s secured by your home’s equity rather than the value of your property itself. Because there are different types of home equity loans, fixed interest rate and variable interest rate, the terms can vary depending on which type is used. Regardless of what type you choose, there are pros and cons to consider before applying for either option.
Home equity loans tend to have higher interest rates than first mortgages because they’re considered riskier investments; however, all things being equal (and assuming no other fees or penalties), this isn’t necessarily true in practice since most lenders won’t make it difficult for borrowers who want to refinance their homes with no money down or want lower monthly payments through an ARM agreement (adjustable-rate mortgage).