What does "cash out" refer to in the context of refinancing a mortgage?

In the context of refinancing a mortgage, "cash out" specifically refers to the scenario where a homeowner refinances their existing mortgage for a larger amount than what they currently owe on it. By doing so, the homeowner allows themselves to receive the difference in cash at closing. This option can be beneficial for individuals looking to access additional funds for various purposes, such as home improvements, debt consolidation, or other financial needs.

Choosing a loan amount that exceeds the remaining mortgage balance ensures that the borrower can tap into the equity they have built up in their home. This process not only involves paying off the existing mortgage but also provides liquidity through the cash received from the refinancing.

The other answers do not accurately reflect this concept: the first option incorrectly pertains to borrowing less, the second option describes a completely different financial aspect regarding payments, and the last option focuses solely on down payments, which are not relevant to refinancing in a cash-out scenario.