What Is Cash-Out Refinance?

A cash-out refinance replaces your current mortgage with a new, larger loan and gives you the difference as cash at closing. You can use these funds for home improvements, debt consolidation, investing, or other financial goals — essentially converting your home equity into liquid money.

For example, if your home is worth $500,000 and you owe $250,000, you have $250,000 in equity. With a cash-out refinance at 80% LTV, you could take out a new loan for $400,000, pay off the existing $250,000 mortgage, and receive roughly $150,000 in cash (minus closing costs of 2%–5%). Your new monthly payment will be higher since the loan balance increased, so make sure the use of those funds justifies the additional cost.

Key Facts

• Maximum LTV: Most conventional cash-out refinances allow up to 80% LTV; VA loans may allow up to 100%
• Closing costs: Typically 2%–5% of the new loan amount, similar to a purchase mortgage
• Rate difference: Cash-out refinance rates are usually 0.125%–0.5% higher than standard rate-and-term refinance rates
• Seasoning requirement: Many lenders require you to have owned the home for at least 6–12 months
• Tax considerations: Interest may be deductible only if cash-out funds are used for home improvements (consult a tax advisor)
• Equity retained: You must keep at least 20% equity in most cases after the cash-out

Frequently Asked Questions

How much cash can I get from a cash-out refinance?

The amount depends on your home’s current value, your existing loan balance, and the maximum LTV your lender allows. At 80% LTV on a $500,000 home with a $250,000 balance, you could access up to $150,000 before closing costs. VA borrowers may qualify for up to 100% LTV.

Is a cash-out refinance a good idea?

It depends on how you use the funds and the rate environment. Using cash-out for home improvements that increase value or to consolidate high-interest debt can be smart. However, you are increasing your mortgage balance and monthly payment, so make sure the math works in your favor over time.