Cash-Out Refinance

DEFINITION of 'Cash-Out Refinance'

A mortgage refinancing transaction in which the new mortgage amount is greater than the existing mortgage amount, plus loan settlement costs. The purpose of a cash-out refinance is to extract equity from the borrower's home. A cash-out refinance is an alternative to a home equity loan.

BREAKING DOWN 'Cash-Out Refinance'

Cash-out refinances are a popular way for borrowers to access the equity in their homes to pay down consumer debt or make additional purchases. Borrowers need to make a risk-based assessment of whether extracting equity from a home is economical. Borrowers also need to be aware that refinancing a mortgage has costs, including the fact that the lender may charge a higher interest rate on a cash-out refinance than a rate-and-term refinance.

RELATED TERMS
  1. Rate And Term Refinance

    The refinancing of an existing mortgage for the purpose of changing ...
  2. No Cash-Out Refinance

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  5. Mortgage Equity Withdrawal

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RELATED FAQS
  1. How would child support payment that I receive affect my debt ratio on a refinance?

    My husband is not on the home loan with me, and I am trying to refinance my home.  ... Read Answer >>
  2. Why does the loan-to-value ratio matter?

    Learn how the loan-to-value (LTV) ratio is calculated, and why this metric is important to lenders when evaluating a home ... Read Answer >>
  3. How do I refinance my home without paying PMI?

    I received one loan of $222,000 and a second of $22,000. I would like to refinance my home, but I do not want to pay PMI. ... Read Answer >>
  4. How do I know if I should refinance my mortgage?

    The typical rule of thumb is that if you can reduce your current interest rate by 0.75-1% or higher then it might make sense ... Read Answer >>
  5. How does the loan-to-value ratio affect my mortgage payments?

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