Home refinancing and cash-out refinancing are both ways to change the terms of your mortgage, but there are some key differences between the two:
- Home refinancing: Home refinancing is the process of taking out a new mortgage to replace your current one. This is typically done to take advantage of lower interest rates or to switch from an adjustable-rate mortgage to a fixed-rate mortgage. With home refinancing, you can lower your monthly mortgage payments, shorten the term of your mortgage, or change the type of mortgage you have.
- Cash-out refinancing: Cash-out refinancing is a type of home refinancing that allows you to borrow more than the balance of your current mortgage and receive the difference in cash. For example, if you owe $100,000 on your mortgage and your home is worth $200,000, you could refinance for $150,000 and receive $50,000 in cash. Cash-out refinancing is typically used to pay for large expenses, such as home renovations, college tuition, or to consolidate high-interest debt.
The key difference between home refinancing and cash-out refinancing is that cash-out refinancing allows you to access the equity in your home, while home refinancing is simply a way to replace your current mortgage with a new one. Cash-out refinancing can provide you with access to cash, but it also increases the amount of debt you have and comes with closing costs and fees. Home refinancing can help you save money on interest and lower your monthly mortgage payments, but it does not provide you with cash.
