cash out refinancing
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Cash out refinancing (in the case of
real property In English English usually refers to: * English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, early medieval England, which has eventually become the World la ...
) occurs when a
loan In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avai ...
is taken out on property already owned, and the loan amount is above and beyond the cost of transaction, payoff of existing
lien A lien ( or ) is a form of security interest In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and inv ...

lien
s, and related expenses.


Definition

Strictly speaking, all refinancing of debt is "cash-out," when funds retrieved are utilized for anything other than repaying an existing loan. In the case of common usage of the term, cash out refinancing refers to when equity is
liquidate Liquidation is the process in accounting by which a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of ...
d from a property above and beyond sum of the payoff of existing loans held in lien on the property, loan fees, costs associated with the loan, taxes, insurance, tax reserves, insurance reserves, and in the past any other non-lien debt held in the name of the owner being paid by loan proceeds.


Example of cash out refinancing

A homeowner who owes $80,000 on a home valued at $200,000 has $120,000 in equity. This equity can be liquidated with a cash-out refinance loan providing the loan is larger than $80,000. The total amount of equity that can be withdrawn with a cash-out refinance is dependent on the mortgage lender, the cash-out refinance program, and other relative factors, such as the value of the home. .


How does a cash out refinance differ from a home equity loan?

* A home equity loan is a separate loan on top of a first mortgage. * A cash-out refinance is a replacement of a first mortgage. * The interest rates on a cash-out refinancing are usually, but not always, lower than the interest rate on a home equity loan. * The borrower pays the mortgage refinance closing costs. * Generally, the borrower does not pay closing costs for a home equity loan. *
Closing costs Closing costs are fees paid at the ''Closing (real estate), closing'' of a real estate transaction. This point in time called the ''closing'' is when the Title (property), title to the property is Conveyancing, conveyed (transferred) to the buyer. ...
can amount to hundreds or thousands of dollars.


Related topics

The opposite, "rate-and-term" refinancing, occurs when a better note rate, better loan terms, or both become available to an owner which restructures their debt portfolio as it relates to liens held against a subject property. Consolidating multiple loans into one loan without extracting cash is also a rate-and-term. Loan-to-value limits, and other factors in loan approval determine how much cash can be taken out from the equity of any one property.


See also

*Prop. 13, California Proposition 13 (1978), United States, U.S. *Real estate bubble *Inflation *Home equity Mortgage {{finance-stub