A cash-out refinance (also called Loan Take Out / Refinancing) is a type of home loan refinance that allows you to take advantage of the equity you’ve built in your home. It allows you to move your home loan to a new bank and also gives you extra cash in exchange for taking on a larger home loan.

In other words, with a cash-out refinance, you borrow more money than your current home loan balance and keep the difference to spend how you like.

A cash-out refinance doesn’t add another monthly payment to your list of bills – the new home loan lender will pay off your current home loan and replace it with a new home loan - usually with a lower interest rate.

Let’s say, for example, that you bought a home for Php 2,000,000 and you’ve paid off Php 600,000. This means you now owe Php 1,400,000 on your home loan. Let’s also say that you want to make Php 200,000 worth of renovations.

With a cash-out refinance, you take some of your equity and then add what you’ve taken out on your new home loan. This means your new mortgage would be worth Php 1,600,000 – the original Php 1,400,000 you owed on the home plus the Php 200,000 you wanted for renovations.

When you get a cash-out refinance, you can do what you want with the equity portion of the money. You can buy a car, pay off more expensive debts, or cover an unexpected medical bill.

Cash-out refinancing gives you access to lower interest rates than credit cards otherwise would have so it’s up to you to work out where it’s best spent.