A refinance where you replace your existing mortgage with a larger one and take the difference in cash. Useful for home improvements or debt consolidation — but it resets your loan.
A cash-out refinance lets you tap into your home equity by taking out a new, larger mortgage and pocketing the difference. You're essentially using your equity as collateral for a lump sum of cash.
How it works: say your home is worth $500K and you owe $300K on your current mortgage. You refinance for $400K — the lender pays off the old $300K mortgage and gives you $100K in cash (minus closing costs).
Most loan programs cap cash-out refinances at 80% LTV (so you have to keep at least 20% equity in the home). Rates are typically 0.25–0.5% higher than rate-and-term refinances. Best uses: home improvements that add value, high-interest debt consolidation, major life expenses where the tax-advantaged mortgage rate beats other financing.
Example
Your $500K home has $300K balance. You cash-out refi for $400K at 6.75%. Closing costs $8K. You walk away with $92K cash for a kitchen renovation and to pay off $30K of high-interest credit card debt. Your new mortgage payment is higher, but you've consolidated debt at a lower blended rate.
Also known as
cash out refi, cash-out mortgage, equity refinance