Cash Out Refinance
A cash-out refinance replaces your existing mortgage with a larger one and gives you the difference in cash — it’s a way to tap your home equity without taking out a second loan.
Say you owe $200,000 on a home worth $380,000. You refinance into a $280,000 mortgage, pay off the old $200,000 loan, and pocket $80,000 (minus closing costs of $6,000–$9,000). Your monthly payment goes up because you’re borrowing more, but you’ve got a chunk of cash to work with.
Cash-Out Refinance vs. HELOC
| Factor | Cash-Out Refinance | HELOC |
|---|---|---|
| Rate type | Fixed (usually) | Variable (usually) |
| Monthly payment | One payment (replaces old mortgage) | Two payments (old mortgage + HELOC) |
| Closing costs | 2%–3% of new loan ($6K–$9K on $300K) | $0–$2,000 |
| Access to funds | One-time lump sum | Revolving credit line |
| Interest deductibility | Yes (if used for home improvement) | Yes (if used for home improvement) |
| Max LTV | 80% (conventional), 85% (FHA) | 80%–85% |
| Best for | Large one-time expense, lower fixed rate | Ongoing or uncertain borrowing needs |
When Cash-Out Makes Sense
Home renovations. A $60,000 kitchen and bathroom remodel that increases your home’s value by $80,000 is borrowing smart. The interest may be tax-deductible, and you’re reinvesting in the asset that secures the loan.
High-interest debt consolidation. Replacing $40,000 in credit card debt at 22% with mortgage debt at 7% saves over $500/month in interest. But you must actually close the credit cards afterward. If you run them back up, you’ll have both the larger mortgage and the card debt.
Rate drop opportunity. If current rates are lower than your existing mortgage rate, a cash-out refi lets you reduce your rate and access cash simultaneously. This scenario doesn’t come up often — but when it does, it’s a no-brainer.
When to Avoid Cash-Out
- Vacations, cars, or lifestyle spending. Turning unsecured wants into 30 years of secured debt against your house is objectively bad math
- You’re already at 70%+ LTV. Borrowing up to 80% leaves you thin on equity. A 5%–10% home price dip puts you underwater
- You’re close to retirement. Adding $80,000 to your mortgage at 58 means carrying that debt well into your 70s
- Rates are significantly higher than your current mortgage. Going from 3.5% to 7% to access cash is expensive. A HELOC as a second mortgage might cost less
Requirements
Cash-out refinance standards are tighter than rate-and-term refinances:
- Credit score: 620+ (680+ for best rates)
- LTV: 80% max for conventional, 85% for FHA
- DTI: 43%–50% depending on loan type
- Seasoning: Most lenders require 6–12 months of ownership
- Reserves: 2–6 months of payments in savings after closing
Frequently Asked Questions
How much cash can I actually get?
Take your home’s current appraised value, multiply by 80% (or 85% for FHA), and subtract what you owe. That’s your maximum cash-out amount before closing costs. On a home worth $400,000 with a $220,000 balance: $400,000 x 80% = $320,000 minus $220,000 = $100,000 max. After $7,000 in closing costs, you’d net about $93,000. Run the exact numbers through our refinance calculator, and compare the new payment against your current one using the mortgage calculator.