In real estate, a cash out refinance is when you take a loan out on a property that you already own, where the amount you are borrowing is more than the cost of the transaction of owning the property, payments of existing liens, and other related expenses, such as taxes, insurance, and insurance and tax reserves.
Basically, this process will replace an existing mortgage with a new one that offers you more favorable terms as a borrower. Based on your needs, you may be able to negotiate a lower interest rate, decrease your monthly mortgage payments, extend the terms of your loan, get access to money through your home equity, or remove additional borrowers from the loan obligation.
While it is sometimes confused with a home equity loan, a cash out refinance is technically different since it replaces your first mortgage, with interest rates that are usually lower. You do need to pay for closings costs, however, which can amount to hundreds or thousands of dollars.
A home equity loan, on the other hand, is a separate amount of money borrowed on top of your first mortgage. To determine the amount you can borrow, know the total amount of your home’s equity by subtracting your property’s current fair market value from any and all debts secured against your house. Up to 90% cash value of that total equity you can borrow.