As you pay off your mortgage, you gain equity in your home which you can use to your benefit. Equity is the difference between what you owe on your mortgage and the value that your home is worth. For example, if you owe $100,000 on your mortgage and your home is valued at $200,000, then you have $100,000 of equity.
Equity can be gained in two main ways—your home increasing in value, or by paying down your mortgage principal. With a cash-out refinance, you utilize the equity you’ve built into your home, borrow more than you owe on the mortgage, and get cash for the difference. This type of refinance is very helpful for homeowners who want to make more expensive home repairs or anyone who needs extra funds for unexpected expenses.