Written by Info Expert on March 9, 2010 | Posted in Finance and Money

If you are interested in both refinancing and doing a few upgrades to your home, you may want to look into a refinance with cash out option. When choose a cash-out refinance, you not only refinance your existing debt, but also take cash out. This is usually done in one of two ways. You can either take out credit based on home equity, also known as a Heloc, or refinance your entire mortgage into one or two loans.

For example, say your home is worth $250,000 and you want to refinance with cash out of $50,000. You have $100,000 in equity and $150,000 remaining in liens. If you wish to go the Heloc route, you can add a second mortgage behind your $150,000 mortgage, creating $200,000 in existing liens. The downside of this is that it lowers your equity by $50,000. You now have, however, a $50,000 line of credit.

The other way you can do this is by refinancing the entire thing into a single loan. In this situation, rather than taking out a 2nd mortgage, you will refinance the extra $50,000 into a single mortgage. In effect, this creates the same amount of debt and new credit, but consolidates everything into one loan.

Which method of refinance with cash out is best for you then? You should always make this decision based on your own situation. For example, if interest rates are lower than when you locked in your first mortgage, it is probably in your best interest to refinance your entire mortgage. If the opposite is true, however, it may be more beneficial to take out the second mortgage without effecting the terms and rates you have locked into place with your first mortgage. Whether you are interest in a refinance with cash out to consolidate debt, home improvement, college tuition or other reasons, make sure you examine the issue thoroughly to determine how much and which method is right for you.

Popularity: 1% [?]