A cash-out refinance pays off your current mortgage with a new, larger one — and you walk away with the difference in cash. It's a popular way to tap home equity at first-mortgage rates (lower than HELOC or home equity loan rates).
Conventional cash-out loans typically allow up to 80% LTV, FHA up to 80%, and VA up to 100% on eligible borrowers. The new loan replaces your existing first mortgage, so your old payment goes away and you get a brand-new amortization schedule.
Cash-out is best for large, one-time uses (debt consolidation, major renovation, down payment on a second property) where the long-term lower rate outweighs the closing costs. For smaller or recurring needs, a HELOC is usually cheaper.