Understanding "Cash-Out" Refinanace

[Neil Anthony]

Hello all! I'm kind of new to all of this, and I was wondering if someone could help me understand the benefits of cash-out refinancing. I've heard people say you can take money out/cash-out tax free!

But as I THINK I understand it, you're basically just borrowing more money from a bank right? At the core, it's a loan. And ALL loans are basically tax-free. If you don't pay back the bank their money, they're going to take the house from you. Also, your mortgage will now be higher which I would assume would negatively impact any cash-flow you're receiving from the property you just borrowed against.

Am I correct? I guess I'm just trying to wrap my head around what's the difference between a cash-out refinance and a straight-up bank loan.

Thanks!

[Chris Lounsbury]

Hey Neil, I'm also fairly new at this but I am going through a cash-out refi right now so maybe I can help shed some light for you. Basically, yes it is a loan, against the property value of your home and equity you have in it. And yes it is possible for your mortgage to increase, although sometimes when someone buys a home from a private lender or hard money lender, their interest rates and short terms might actually be larger than refinancing with a bank at 3-4%. Also, it gives you more cash to do deals. You have equity in this home that is just sitting there, so a cash-out refi allows you to leverage that cash for more deals. You will have to pay back with interest rates at 3-4%, but you're assuming your next deal is going to be a better ROI than that percentage. All in all its just another way to leverage yourself to do more deals at a low interest rate.

Hope that makes any sense/hope I'm right in the way I'm looking at how it works lol.