Cash-out Refinance

With cash-out refinancing, you refinance your mortgage for more than you currently owe, then pocket the difference.

Cash-out refinancing differs from a home equity loan in a couple of ways. First, a home equity loan is a separate loan on top of your first mortgage; cash-out refinancing is a replacement of your first mortgage. Second, the interest rate on cash-out refinancing is usually, but not always, lower than the interest rate on a home equity loan.

Another difference: You have to pay closing costs when you refinance your loan; you don't have to pay closing costs for a home equity loan. Closing costs can amount to hundreds or thousands of dollars.

Finally, it doesn't make sense to refinance a higher amount at a higher rate. If your current mortgage is at a lower interest rate than you could get now by refinancing, it's probably better to get a home equity loan.