Say you took out a $200,000 mortgage to buy a property worth $300,000, and, after many years, you still owe $100,000. Assuming that the property value has not dropped below $300,000, you have also built up at least $200,000 in home equity. If rates have fallen and you are looking to refinance, you could potentially get approved for 100% or more of your home’s value, depending on the underwriting.
Many people wouldn’t necessarily want to take on the future burden of another $200,000 loan, but having equity can help the amount you can receive as cash. Typically, banks are willing to lend out around 75% of a home’s value. For a $300,000 home, this would be around $225,000. You need $100,000 to pay off the remaining principal.
If you decide to only get cash of $50,000, you would refinance with a $150,000 mortgage loan that has a lower rate and new terms. The new mortgage would consist of the $100,000 remaining balance from the original loan plus the desired $50,000 that could be taken out in cash.