Refinancing a mortgage for more than you owe and pocketing the difference as cash, using your home equity.
Full Definition
In a cash-out refinance, you replace your existing mortgage with a new, larger loan and receive the difference in cash at closing. For example, if your home is worth $500,000 and you owe $300,000, you might refinance into a $380,000 mortgage and receive $80,000 cash (minus closing costs). Lenders typically allow cash-out up to 80% of the home's appraised value (or up to 100% for VA cash-out). Cash-out refinances typically carry slightly higher rates than rate-and-term refinances because of the increased loan amount and risk. Common uses include home renovations, debt consolidation, investment properties, and large purchases. Interest on cash-out used for home improvements may be tax-deductible — consult a tax advisor.
Related Terms
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