Cash-out financing occurs when a borrower refinances his mortgage for more than he currently owes to pocket the difference in cash up-front. Homeowners who need cash to pay for their kid’s college education or for a new car will often do a cash out refinance. These loans differ from home equity loans (HELOCs) in that cash out refinances replace the current mortgage, while a HELOC is a separate loan in addition to the first mortgage. Cash out refinances will often have lower interest rates than HELOCs, but the closing costs are usually higher.
