What Is a Cash-Out Refinance?
A cash-out refinance may allow qualified homeowners to replace their current mortgage with a larger loan and receive part of their available equity in cash. The amount available, loan terms and costs depend on the property, current mortgage balance, credit, income and applicable loan-program requirements.
A cash-out refinance replaces your current mortgage with a new, larger loan. Your old loan is paid off, and you receive the remaining equity in cash after closing costs.
How It Works
- Apply for a new mortgage
- Get your home appraised
- Determine available equity
- Pay off your existing loan
- Receive cash at closing
Loan-to-Value (LTV) Requirements
How much you can borrow depends on:
Is a Cash-Out Refinance Worth It?
Whether a cash-out refinance makes financial sense depends on the new interest rate, closing costs, repayment term, amount borrowed and how the funds will be used. Compare the new loan’s total cost with alternatives such as a home equity loan, HELOC or personal loan before deciding.
Common Uses
Homeowners often use cash-out refinancing for:
- Home renovations
- Debt consolidation
- Education expenses
- Investment opportunities
- Emergency savings
- Business funding
Benefits
- One monthly mortgage payment
- Potentially lower rates than other loans
- Access to large amounts of cash
- Possible improved loan terms
Risks
- Higher mortgage balance
- Closing costs
- Longer repayment period
- Reduced home equity
- Risk of over-borrowing
Examples
A homeowner may refinance to:
- Renovate a kitchen
- Pay off high-interest credit cards
- Fund college tuition
- Start a small business
Every situation is different, so results vary.
Alternatives to a Cash-Out Refinance
Other options include:
- HELOC (flexible borrowing line)
- Home equity loan (fixed lump sum)
- Personal loan (no home collateral)
- Reverse mortgage (for eligible seniors)
- Selling the home
Each may be better depending on your goals and financial situation.
Thinking about using your home’s equity?
We’ll review your mortgage, estimate your available equity, and help you decide if a cash-out refinance is the right move.
