Understanding cash-out refinancing By Holden Lewis Remember the Mother Goose rhyme about the old woman who lived in a shoe? That is so 18th century. Today she would live in a piggy bank, and so would her neighbors. Homeowners today treat their houses like piggy banks, readily transforming their equity into cash and credit. You have home equity loans (still sometimes called second mortgages), home equity lines of credit and reverse mortgages. Then there's cash-out refinancing. Cash-out refinancing explained With cash-out refinancing, you refinance your mortgage for more than you currently owe, then pocket the difference. Here's an example: Let's say you still owe $80,000 on a $150,000 house, colorado debt consolidation loan colorado debt consolidation loan and you want a lower interest rate. You also want $20,000 cash, maybe to spend on your kid's first semester at Princeton. You can refinance the mortgage for $100,000. That way, you get a better rate on the $80,000 that you owe on the house, and you get a check for $20,000 to spend as you wish. Continued below 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; a cash-out refi is a replacement of your first mortgage. Second, the interest rate on a cash-out refinancing is usually, but bad debt allowance colorado debt consolidation loan 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. Is cash-out refinancing right for me? So, if you want to extract a chunk o' change from your three-bedroom piggy bank, how become mortgage broker colorado debt consolidation loan do you decide whether a cash-out refi is right for you? It depends on how much you would save each month and what you want to spend the money on. Let's take the example of the mythical Jack and Jill Bankrate. They took out a $100,000 mortgage on a $130,000 house in early 1992. Their interest rate was 9.95 percent, making their monthly payment $873.88 (plus taxes, insurance and other extras). Ready to refinance? Check rates in your area. For 11 years, Jack and Jill have been so busy fetching pails of water that they never bothered refinancing. Now it's early 2003, and they qualify for a rate of fair debt collections act colorado debt consolidation loan 5.75