A cash-out refinance replaces your current mortgage with a new, larger one. The difference is paid to you as a lump sum at closing, drawn from your home's equity.

Lenders typically allow you to borrow up to 80% of the home's appraised value (combined with the existing mortgage). The new mortgage usually has a slightly higher interest rate than a rate-and-term refinance.

Cash-out refis are commonly used for home improvements, debt consolidation, or large expenses. The interest may be tax-deductible if the cash is used to substantially improve the home.