Last week, I covered in detail what a Home Equity Line of Credit (HELOC) and a Home Equity Loan (HELOAN) are. They are two common options to obtain a secondary loan to utilize the equity in your home for a major purchase or to act as a safeguard just in case you should ever need to have access to cash. Today, I will explain how a cash out refinance works, and how it compares to these two home equity products.

A cash out refinance is exactly what it sounds like: a refinance of your current mortgage where you borrow more than you currently owe, based upon the equity in your home, and can use the additional funds for whatever you would like. Unlike the HELOC/HELOAN options, there is going to still be only one payment, and you can often find ways to restructure the new loan to eliminate PMI if you are paying it, lower your monthly payments, or lessen the term of your mortgage.

Unfortunately, you are refinancing your entire debt, so if you have a super low rate or are nearing the end of your amortization table, it may not make sense to refinance the debt and start over. So if you are truly serious about accessing the equity in your home, it is always a good idea to contact a qualified mortgage professional before making a decision; it could save you tens of thousands of dollars in interest if you properly structure your debts.

If you have any questions about cash out refinances or home equity based products, please contact me and I will help you figure out the best way to go. If you have anything to add about the difference between cash out refinances and home equity based products, please leave  a comment.