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
Using Home Equity to Consolidate Debt: What to Compare
A cash-out refinance may be used to pay off credit cards or other debts, but there is an important tradeoff: debt that was previously unsecured may become part of a loan secured by your home. Missing mortgage payments can put the home at risk. Stretching a shorter-term debt over a new, longer mortgage can also increase the amount of interest paid, even if the combined monthly payment is lower.
A cash-out refinance replaces your entire first mortgage, including any favorable terms you have today. A separate home equity loan or home equity line of credit (HELOC), if available and appropriate, may let you keep that first mortgage—but adds another loan to evaluate. HELOC rates may be variable, and either home-equity option can put the property at risk. Compare the cost and payments on all loans together, the repayment periods, fees and the option of not borrowing. Read the CFPB’s explanation of cash-out risks and our refinance closing-cost guide.
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.
