How do people get thousands (or tens of thousands) when they refinance their house?

Question

I understand the price of the home has gone up since the purchase so there’s let’s say $30k in equity. How are they entitled to this $30k just magically? Does their mortgage balance increase too kind of like they took a loan out?

In: Economics

Answer 1

I bought a house for $200k ten years ago. I still owe the bank $150k. The house is now worth $300k

I take out a new loan for $180k. I use $150k to payoff the first loan, then have $30k in cash to use to do whatever I want with it.

I now owe the bank $180k, but I still have my house and $30k in cash