If one has taken a mortgage loan of a particular amount which is less than the value of underlying asset and now in need of more money than he can go for Cash- Out refinancing. In Cash- Out refinancing the existing mortgage loan will be modified and the new mortgage amount after addition of new requirement will be more than the previous amount, and obviously less than the asset value. So we can say that the person is just cashing out the equity value of underlying asset.
Let’s say you have taken a mortgage loan for your house, valued at 150000 units, of 100000 units and now for some repair work you need more money. The reaming equity value of your house is 50000. The extra amount you need must be less than 50000. Let’s say you ness 20000 more. Now you can either file for a whole new loan or can just refinance it. If you go for cash-out refinancing the loan amount will increase to 120000 and equity will decrease to 30000.