As housing costs rise, more owners are cashing in their home’s wealth for money.

The number of homeowners taking loans against their homes has increased 8 percent in the U.S. since last year, and most cases happen in New York.

Albany, New York is No. 1 of 100 cities, where cash-out refinancing is prevalent, says a study from loan marketplace website Lending Tree.

Where most people use a cash-out refinance

  • Albany, New York: 73 percent
  • Portland, Oregon: 72 percent
  • Cape Coral, Florida: 72 percent
  • Boise City, Idaho: 72 percent
  • Scranton, Pennsylvania: 71 percent

States with highest loan amounts

  • Bridgeport, Connecticut: $453, 307
  • San Jose, California: $451,777
  • San Francisco, California: $442,099
  • Honolulu, Hawaii: $415,224
  • San Diego, California: $373,039

What exactly is a cash-out refinance?

This is when a homeowner refinances their mortgage loan for a larger mortgage loan. The owner, or borrower, then takes the difference between the new and old loan in cash, according to LendingTree. The borrower will have needed to built up equity — or what they own — first.

A cash-out refinance can pay the difference of your mortgage rate and home’s value, says nerdwallet. There is also a limit of 80-90 percent of a home’s value you can borrow against.

Hypothetically speaking, if you have a home worth $225,000, owe $125,000, but want to borrow $25,000, you could cash-out refinance for that money.

By paying off that $75,000 of the house, you now own $75,000 in equity. Therefore, you can take out a loan of $150,000, which would pay off the $125,000 you owe, and then take the $25,000 in cash. But, of course now you’re left with a larger loan to pay off, and the goal is to have the cash-out refinance work out to give you a smaller interest rate to pay back — but that doesn’t always happen.

The number of cash out refinancing through Lending Tree rose to 62 percent at the beginning of this year compared to 54 percent the same time last year. The increase of mortgage rates since November 2017, has brought along an increase in home prices. This has shown increases in cash-out refinancing rates previously.

Home values were at a historic low in 2012, and the number of cash-out refinancing was at 14 percent, according to a study from Bankrate. While three years later the housing market rose, and the rate of cash-out refinance increased to 34 percent.

Pros and (mainly) cons of a cash-out refinance

Some disagree on the pros of borrowing against your home.

You can use a cash-out refinance loan against your to pay down your debt and boost your FICO score, according nerdwallet’s pros and cons list. Debt.com on the other hand sees this concept as dangerous.

“Increasing your risk to lose your home just to pay off credit card debt usually isn’t worth it,” Debt.com’s EDU page says. “That being said, if you plan on using equity for another purpose, such as home renovation projects, there’s nothing wrong with using leftover funds to pay off a few credit card balances. But experts will usually tell you to avoid using equity solely for the purpose of debt consolidation.”

Nerdwallet does agree on its cons of a cash-out refinance.

The website says you can risk foreclosure on your home, you’ll have new, different terms on your loan than previously, and you’ll be enabling bad habits. Not to mention doing so makes you responsible for closing costs — or fees either buyer or seller takes on a home when making a home transaction — on the mortgage, which usually will cost around 2 percent-5 percent the cost of the home loan.

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Joe Pye

Joe Pye

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Pye is the associate editor of Debt.com.

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Article last modified on May 2, 2018 Published by Debt.com, LLC . Mobile users may also access the AMP Version: Where Are People Borrowing Against Their Homes The Most? - AMP.