Cash Out

The term cash out applies to a type of mortgage refinancing where the property owner receives cash by taking on additional debt secured by accumulated equity in the real property, hence the phrase cash out. Low and falling mortgage interest rates encourage cash out refinance, or refi mortgages. Falling rates make it worthwhile to replace an existing mortgage having a higher interest rate with one at a lower prevailing rate, whether including cash out or not. Low interest rates support property appreciation, which increases the accumulation of owner equity necessary to support a cash out transaction. As a category, cash out mortgages have historically been a minority of refi volume even in the most favorable circumstances. As long as the borrower does not default, cash out refinancing increases lender profits, because of the additional interest income generated by the increased principal balance. The home equity loan and home equity line of credit are alternatives to the cash out refinance transaction.