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A cash-out refinance is a replacement of your 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. You pay closing costs when you refinance your mortgage. Generally, you don’t pay closing costs for a home equity loan.
The purpose of a cash-out refinance is to extract equity from the borrower’s home. A cash-out refinance is an alternative to a home equity loan. A mortgage refinancing transaction in which the new mortgage amount is greater than the existing mortgage amount, plus loan settlement costs.
Cash-out refinances are a popular way for borrowers to access the equity in their homes to pay down consumer debt or make additional purchases. Borrowers need to make a risk based assessment of whether extracting equity from a home is economical. Borrowers also need to be aware that refinancing a mortgage has costs attached to it, including the fact that the lender may charge a higher interest rate on a cash-out refinance than a rate-and-term refinance.