Where does equity go?

[Daniel Vanhala]

Hi. When you cash out refinance a house you own outright, where does the existing equity go? For example, if you bought a house for $40,000 cash, now it's worth $200,000 cash. Do you get the 80% cash ($160,000 in this instance) plus your original $40,000 back?

[Greg Scott]

Let's start over.

Let's say you have house worth $200K, with no mortgage, and did an 80% cash-out refi.  Ignoring closing costs, you have converted $160K of equity into cash.  The remaining $40K of equity is still in the house.  If you sold the house, ignoring closing costs, you would get the remaining $40K as cash.