Types

• Many borrowers refinance their mortgages. There are two types of refinancing available: a rate and term refinance and a cash out refinance.
  
  

Significance

• A borrower can refinance his mortgage to use the equity built up in the home to pay off other debt or to have extra cash to pay expenses.
  
  

Features

• A cash out refinance adds principal to the debt of the mortgage, meaning that the borrower will owe more money to the lender after the refinance than before.
  
  

Considerations

• If the borrower uses the built-up equity in the home to pay off other debt, the short-term debt becomes long-term debt paid over the life of the loan. It may mean that more interest is paid over the life of the loan.
  
  

Benefits

• A cash out mortgage may allow a borrower to make needed repairs or additions on the home that could end up raising the overall value of the residence.