A cash-out refinance is…
…the process of taking out a new mortgage at an amount that exceeds the existing balance on the current mortgage in order to refinance the original mortgage and receive additional cash for other uses. A cash-out refinance will often carry a slightly higher interest rate. The higher rate is based on studies of delinquency and default which indicate that borrowers who do a cash-out tend to have poorer payment records than borrowers who don’t. The theory is that borrowers who need cash are financially more vulnerable than borrowers who don’t, and in some cases they may be more likely to fall behind on their mortgage payment.
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