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

Here’s an example. You buy a house that’s valued at 100k with a loan. You improve that house so it’s now worth 300k. You take out a new loan based on the new value. You immediately lose whatever is still owed on the original loan, and gain the remaining amount.