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.

Investopedia Says:
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.

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Refinancing of a mortgage loan in which the new loan is larger than the Outstanding Balance of the old loan. The result is that the borrower realizes cash proceeds from the transaction.
Example: The Keelers owe $75,000 on their home mortgage. Since they took out the loan, interest rates have fallen. Therefore, they can do a cash-out refinance with a $90,000 loan and have the same monthly payment as the old loan. Although the balance on the new loan is higher, the payments are the same because of the lower interest rate. The $15,000 proceeds from the refinancing, minus transaction costs, can be used for any purpose.