Cash Out Home Equity

Cash out refinancing (in the case of real property) occurs when a loan is taken out on property already owned, and the loan amount is above and beyond the cost of transaction, payoff of existing liens, and related expenses.

Definition

Strictly speaking all refinancing of debt is "cash-out", when funds retrieved are utilized for anything other than repaying an existing lien.

In the case of common usage of the term, cash out refinancing refers to when equity is liquidated from a property above and beyond sum of the payoff of existing loans held in lien on the property, loan fees, costs associated with the loan, taxes, insurance, tax reserves, insurance reserves, and in the past any other non-lien debt held in the name of the owner being paid by loan proceeds.

Example of Cash Out Refinancing

A homeowner who owes $80,000 on a home valued at $200,000 has $120,000 in equity. That equity can be liquidated with a cash out refinance loan providing the loan is larger than $80,000. The owner could use the refinance loan to pay off the original mortgage and could then pocket whatever money is left over.

The total amount of equity that can be withdrawn with a cash-out refinance is dependent on the mortgage lender, the cash-out refinance program, and other relative factors, such as the value of the home.

Related topics

The opposite, "Rate-and-term" refinancing occurs when a better note rate, better loan terms, or both become available to an owner which restructures their debt portfolio as it relates to liens held against a subject property. Consolidating multiple loans into one loan without extracting cash is also a rate-and-term.

Loan-to-value limits, and other factors in loan approval determine how much cash can be taken out from the equity of any one property.

See also

• California Proposition 13 (1978), U.S.
• Real estate bubble
• Inflation
• Home equity

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