Remember the Mother Goose rhyme about the old woman who lived in a shoe? That is so 18th century. Today, she would live in a piggy bank, and so would her neighbors.

Cash-out refinancing explained

Here's an example: Let's say you still owe $80,000 on a $150,000 house, and you want a lower interest rate. You also want $20,000 cash, maybe to spend on your child's first semester at Princeton. You can refinance the mortgage for $100,000. Ideally, you get a better rate on the $80,000 that you owe on the house and you get a check for $20,000 to spend as you wish.

Cash-out refinancing differs from a home equity loan in several ways:

• A home equity loan is a separate loan on top of your first mortgage.
• A cash-out refinance is a replacement of your first mortgage.
• The interest rates on a cash-out refinancing are usually, but not always, lower than the interest rate on a home equity loan.
• You pay closing costs when you refinance your mortgage.
• Generally, you don't pay closing costs for a home equity loan.
• Closing costs can amount to hundreds or thousands of dollars.

It doesn't make sense to refinance a higher amount at a higher rate. If your current mortgage is at a lower interest rate than you could get now by refinancing, it's probably better to get a home equity loan. Or, if you're 20 years into a 30-year mortgage, you're paying more principal than interest with each mortgage payment, says Nancy Flint-Budde, independent Certified Financial Planner in Salem, N.Y. "If you are that far into a loan, then it might not make sense to refinance, even if your current rate is slightly higher."

Is cash-out refinancing right for me?

It depends on how much you would save each month and what you want to spend the money on.