What Can a Cash-Out Refinance Pay for?

Proceeds from a cash out refinance loan can be used for a variety of reasons. A cash out refinance opportunity exists when a homeowner has a loan amount that is considerable less than the equity available in the home. This opportunity creates the ability for a borrower to use the excess amount, after the existing loan has been paid, to use the additional amount for other purposes.

Pay off Existing Mortgage

The proceeds from a cash out refinance can be used to pay off the existing mortgage loan. An example of how a cash out refinance works is the borrower with a $500,000 mortgage with an outstanding loan balance of $100,000 and equity of $400,000 takes out a cash out refinance loan for up to $400,000. Of the amount received, the borrower pays off the $100,000 outstanding balance and pockets $300,000.

Pay off other Debts and Obligations

In the example above, the cash out refinance loan leaves the borrower with $300,000 in cash to use toward other debts and obligations that they may have. This includes medical bills, student loans, vehicle loans and any other bill or obligation that they wish to pay off. The funds may also be used for personal reasons such as investments, property repairs or a vacation.