Glossary

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Cash-Out Refinance
Homeowners who have a significant amount of equity in their property may want to consider a cash-out refinance. This type of loan allows borrowers to refinance more than they currently owe on their residence. During closing, the original loan balance is paid off, and the homeowners then receive a check for the remaining balance. These individuals are free to use the money however they choose, but the most common reasons for undergoing a cash-out refinance is to make home improvements or consolidate other bills. A cash-out refinance could occur if the Jones family currently owe $125,000 on their residence, which has a fair market value of $150,000. Mr. and Mrs. Jones could borrow $150,000 against the property. Upon doing so, $125,000 would be used to pay off the first mortgage, and the remaining $25,000 would be paid to them in cash.