Cash Out Definition

Cash out refinancing allows a person to exchange real estate equity for cash. For example, if a person owns a $300,000 house and owes $100,000 on the mortgage, they could obtain cash out refinancing of $250,000. They would then use $100,000 of the cash out refinancing to pay off the existing home mortgage, and could then pocket the remaining $150,000 in cash. This would leave them with a $300,000 house and owing a $250,000 mortgage. Most financial institutions will only offer cash out refinancing if the amount borrowed exceeds the existing mortgage and is used to pay off the exiting loan. In the absence of a legitimate financial emergency, cash out refinancing is a bad idea as it increases personal debt and leverages future income.