What Is Cash-Out Refinance?
Refinancing for more than you owe and taking the difference in cash, using your home equity as collateral.
Definition
A cash-out refinance replaces your existing mortgage with a larger loan and pays you the difference in cash. For example, if your home is worth $500,000 and you owe $300,000, you might refinance into a $380,000 loan and receive $80,000 in cash. The appeal: access to home equity at mortgage rates, which are typically much lower than personal loans or credit cards. The trade-offs are real: you increase the amount you owe, reset your amortization schedule, and pay closing costs. Lenders typically require you to retain at least 20% equity after the cash-out, so LTV cannot exceed 80% in most cases. Use cases include home renovations, debt consolidation, and major life expenses.
Example
Home value $450,000, current balance $250,000. Max 80% LTV allows a $360,000 new loan. Cash received: $360,000 minus $250,000 minus $6,000 closing costs = $104,000.