Cash Out Refinance

Cash Out Refinance

What is a Cash Out Refinance?

Cash Out Refi is a type of mortgage where, when you refinance, you take a portion of the equity out as cash. 

Borrowers undergo a refinance first. They typically have an underlying mortgage and decide to get a new loan out. The new loan will pay off the initial loan's balance and the borrower will begin paying monthly payments to the new lender and servicer.

How does a Cash Out Refi work?

Suppose you own a property that's worth $500,000 and you have 50% equity in the property ($250K). You then decide to add in $100,000 worth of property improvements and you get your property appraised to be $1,000,000 given the improvements you've put in.

Your 50% equity in the $1,000,000 property is now worth $500,000. You can go to a lender and, if they lend to you at 75% LTV, you can reduce your equity to 25% and cash out $250,000.

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