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

That’s exactly it, they’re borrowing from the value of their home. Example: someone owes $100k on a home valued at $300k, and does a $100k cash-out refi. Afterward they have $100k cash in hand, but instead of owing $100k on their house, they now owe $200k.