The primary goal for most mortgage refinancings is to lower a monthly payment.

However, if you have enough equity built up in your home, you can also tap into that when do a refi.

It’s simple enough – when you do a cash-out refinancing, you assuming a new mortgage at an amount that exceeds the existing balance on the current mortgage, at typically anywhere from 85% to 125% of the appraised value of the property. This refinances the original mortgage, while tapping your equity for additional cash that you can use for other purposes.

So it’s essentially taking cash from your home equity and using your home as collateral to buy a car, pay for college, remodel a kitchen, or for any other need you might have for the cash.

However, a cash-out refi doesn’t make sense for every need you have. For example, it’s typically not a good idea to tap the equity in your home when other loans are available, especially ones that traditionally have low interest rates, like college loans.

If you used home equity to pay for college, you are also missing out on the potential of having an employer or the government repay or forgive part of your college loan based on the profession you enter.