Cashing out refers to the refinancing of a loan where the borrowers will borrow money on their own home. If a home is appraised at $100,000 and the borrower's outstanding mortgage loan is $60,000, it is possible to enter into an 80% cash-out refinance transaction for a loan of $80,000 (80% of $100,000). The new mortgage of $80,000 will pay off the $60,000 loan and leave $20,000 cash-out to the borrowers.
By cashing out on your home you can use the liquid cash to pay off debt, make improvements to increase the value of your home, or start up a business venture. A refinance can also put you into a better interest rate thereby reducing monthly mortgage payments.