In mortgage finance, the term “cash-out refinancing” refers to the practice of refinancing a mortgage using a loan which is larger than the balance of the mortgage being refinanced. The portion of the loan which is not needed to settle the mortgage can be used for other purposes.
When you use cash out refinancing, you typically surrender part of your equity in your property in exchange for cash.
Example: You owe 200,000 Swiss francs for your mortgaged property and you are interested in buying a car for CHF 50,000.
You refinance your mortgage by taking out a 250,000-franc home loan - 200,000 francs of which you use to settle your previous mortgage.
You use the remaining 50,000 francs to buy a car because the interest rate which you pay for your mortgage is much lower than the interest which you would pay for a personal loan.