Cashout refinancing is a loan process that allows you to access the equity in your home. It involves taking out a new loan that is larger than your existing mortgage and receiving the difference in cash. This money can be used for any purpose, such as consolidating debt, covering repair bills, or eliminating student loans. To qualify for a cashout refinance, you typically need more than 20% of your home's net worth.
The loan proceeds are first used to pay off your existing mortgages, including closing costs and any prepaid items. You can borrow up to 80% of your home's net worth, but the repayment requirements for FHA and VA loan refinances are slightly different. Cashout refinancing rates can be between 0.125% and 0.5% higher than rates for cashless refinancing, and you should expect to pay 3 to 5 percent of the new loan amount for closing costs. Before making a major financial decision, such as applying for a second mortgage or withdrawing cash to refinance your current one, it is important to review all of your options.