Financing
Cash-out refinance
A cash-out refinance replaces a mortgage with a new loan whose proceeds pay transaction obligations and release additional property equity to the borrower or other permitted uses.
Glossary
Financing
What is a cash-out refinance?
Primary references on this page:
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CFPB: Using home equity to meet financial needsThe new loan changes the secured debt, payment, rate, term, closing costs, and equity position. Investor and lender programs define classification and eligibility differently. Any Fannie Mae or Freddie Mac rule cited on this page is a dated program rule, not a promise that a borrower or property qualifies.
How cash-out refinance works
Build a funds-flow worksheet using the new loan amount, existing payoff, subordinate-lien payoffs, financed costs, prepaid items, taxes, and expected cash to borrower. Then compare the new debt and payment with alternatives such as a HELOC, home equity loan, unsecured financing, selling, or not borrowing.
Formula: estimated cash before final adjustments = new loan amount − mortgage and lien payoffs − financed costs and other transaction deductions
Worked example
A $360,000 new loan paying a $300,000 first mortgage and $12,000 of financed transaction items leaves a rough $48,000 before final adjustments. The Closing Disclosure and program rules determine the actual proceeds.
Common mistakes and review checks
Treat the result or document as one input to a decision. Verify the current source document, definitions, dates, and transaction facts before relying on it.
This is general educational information, not legal or tax advice. Rules vary by state and locality and change over time — check your local law and confirm specifics with a qualified professional.