When you refinance your mortgage, you seek to replace your current mortgage loan with a new loan that has more favorable loan terms. Usually, you refinance to pay off a higher-interest loan with a loan that has a lower interest rate.
When you refinance, you can choose to borrow just enough to pay the mortgage balance you owe, or if you have enough equity in your home, you can choose to borrow an additional amount in what is called a “cash-out” refinance loan. You can use this extra amount to pay off other debts such as an auto loan or credit cards.