Definition - What does Cash-Out Refinance mean?
A cash-out refinance is when a person refinances their mortgage for an amount that is larger than the initial mortgage. This is done so that the person can get some "cash out" of the new loan. In other words, a cash-out refinance allows a borrower to get a newly financed mortgage, as well as some cash. However, that cash must also be paid back to the lender, plus interest. If it is not, the lender has the ability to take legal action against the borrower to recover the funds.
Justipedia explains Cash-Out Refinance
People may seek to get a cash-out refinance of their mortgage for a number of reasons. However, they typically do it because they are looking to get a lower interest rate on their debt, and also to get some money available immediately. This money can be used to pay other bills, such as tuition, car payments, etc. An example of a cash-out refinance would be a person who refinances his or her $100,000 mortgage for a $120,000 mortgage with a lower interest rate than the original.