Cash-Out Refinance Loans
A cash-out refinance replaces your existing mortgage with a new loan that allows you to access home equity as cash. Loan terms, requirements and available options vary based on credit, equity and loan type. Depending on how long ago you bought your home, its value has very likely increased. It may have increased a lot. Hold that thought, and consider this: If you need money for something important, like educational expenses, paying down higher interest rate debt, or making home improvements, where will you get it? That’s when a cash–out refinance can benefit you.
Credit cards and personal loans are two options, but the interest rates are high. Could your home be the solution? Yes. You may be living in the answer to your financial needs.
What is a cash-out refinance?
When you refinance, you replace your current mortgage with a new one. People often refinance for a lower mortgage interest rate or a shorter loan term. These mortgages are referred to as rate and term refinances and are for the same amount as your current home loan.
A cash-out refinance, on the other hand, is exactly what it sounds like. You refinance using your home equity for a larger amount and take out the difference in cash and use it for investment, emergency fund, debt consolidation or major personal expenses. The key is you must have enough home equity to access as the source of that money. What’s equity? It’s the difference between what you owe on your current mortgage and your home’s appraised value. You gain equity every time you make a mortgage payment (assuming you don’t have an interest-only loan), and when home values rise in your area.
How does a cash-out refinance work?
The goal of a cash-out refinance is for the borrower to unlock the equity in their home by taking out a new, larger mortgage and receiving the additional funds in cash. Here’s a very simplified example.
Example
You bought your home 5 years ago for $300,000, put 20% down ($60,000), and took out a mortgage for $240,000. Home values have increased since then, and your home is now worth $400,000. You leave 20% equity in your home (that’s now $80,000), refinance for $320,000, and get the difference between what you owed on your old mortgage and your new loan amount as cash.
This example is for illustration purposes only and does not represent an actual loan.
Pros and cons of a cash-out refinance
A cash-out refinance can be a powerful financial tool, but it isn’t the right solution for every home financing situation. Understanding both the advantages and tradeoffs can help you decide whether accessing home equity through a cash-out refinance home loan aligns with your long-term financial plans.
Unlike short-term borrowing options, a cash-out refinance home loan replaces your existing mortgage with a new loan that reflects your current home value and allows you to receive a portion of that value as cash. Because this approach restructures your mortgage, it can affect your interest rate, monthly payment, loan term and overall equity position. For some homeowners, the ability to consolidate higher-interest debt or fund major expenses with a single mortgage payment can be the best option possible.
-
- Access to a large lump sum of cash by converting home equity into usable funds
- Lower interest rates than many unsecured options, such as credit cards or personal loans
- Single monthly mortgage payment, which can simplify finances when consolidating debt
- Flexible use of funds for anything, including high-interest debt or even a vacation
- Potential tax benefits when funds are used for qualifying home improvements (please consult a tax professional)
- Availability across multiple loan types, including conventional cash-out refinance, FHA, VA and jumbo options
- May be easier to qualify than some alternatives, depending on your equity position and overall cash-out loan requirements
-
- Closing costs apply, typically calculated as a percentage of the cash-out refinance loan amount
- Loan balance increases, which may affect monthly payments based on terms
- Home equity is reduced, since a portion is converted to cash
- Amortization timeline resets, extending the repayment period
- Interest rates may be higher than a standard refinance, depending on market conditions
- Your home is used as collateral, meaning payments must be maintained
- Not ideal for short-term needs, given the costs associated with cash-out refinancing
Cash-out refinance requirements
To get a cash-out refinance, you’ll need to meet lender requirements, including for debt-to-income ratio and credit score. Generally, you have to have owned your home for at least six months or more, depending on the loan type. Most importantly, you’ll need to have enough equity in your home to make it possible to take funds out, because with the exception of a VA cash-out refinance, you won’t be able to borrow 100% of your home’s value.
Types of cash-out refinance loans
Just as there are many kinds of purchase and refinance home loans, there are different kinds of cash-out refinance mortgage loans. These include conventional, student loan cash-out refi, VA, FHA and Jumbo cash-out refinance loans. Let’s take a look at each of these loans:
-
You’ll need to meet the same credit, income and asset requirements as any other conventional loan. You’ll be able to borrow up to 80% of your home’s appraised value, and you won’t have to pay mortgage insurance.
-
If you’re looking to pay off student loan debt, a conventional student loan cash-out refinance may be a better option than a traditional cash-out refinance. This program is specifically designed to pay off student loans by using your home equity, often allowing borrowers to replace higher-interest student loan debt with a lower mortgage interest rate.
Instead of receiving cash directly, the funds are typically sent straight to the student loan servicer to pay off the debt. Like other conventional cash-out refinances, you must maintain at least 20% equity in your home, and you must have enough equity to pay off at least one student loan. If sufficient equity remains after the payoff, you may be able to receive up to $2,000 in additional cash.
-
A VA cash-out refinance is subject to the same regulations as all VA loans, so it’s only available to Veterans, Active-Duty Military, National Guard Members, Reserve Members and certain Surviving Spouses. Your CCM loan officer will work with you to determine if you meet the requirements, including helping you obtain your Certificate of Eligibility (COE). One great advantage of a VA cash-out refinance is that you can borrow up to 100% of your home’s value.
-
This loan has the same pros and cons as any FHA loan. While the requirements are more flexible than a conventional loan, you’ll have to pay an upfront mortgage insurance premium and monthly mortgage insurance. You can borrow up to 80% of your home’s appraised value, and you don’t have to be refinancing an existing FHA loan. If you can’t meet the credit requirements of a conventional loan, this may be a good choice.
How to get a cash-out refinance
Applying for a cash-out refinance allows a structured process designed to evaluate your eligibility, home value and financial goals. While timelines and requirements can vary by loan type, most borrowers can expect the steps below.
-
When you connect with a CCM loan officer, you can learn about your cash-out refinance options and determine which loan programs may be the best fit for your situation.
-
Your application will provide basic financial information so your loan officer can review eligibility requirements for the loan you choose.
-
As part of the review process, your income, credit profile and overall financial picture are evaluated to confirm you meet lender and loan program guidelines.
-
An appraisal is required to determine your home’s current value and confirm how much equity may be available for a cash-out refinance.
-
Before moving forward, review your mortgage terms carefully, including interest rate, monthly payment and closing costs to ensure the benefits outweigh the costs.
-
Once approved, you’ll complete closing and receive your new loan, with any eligible cash proceeds issued according to your loan terms.
Cash-out refinance vs. home equity loan
Another way to access your home equity is with a home equity line of credit (HELOC) or home equity loan, a type of second mortgage. A cash-out refinance replaces your current mortgage with a new one. A HELOC gives you a line of credit to draw on over time, so you pay interest only on the amount you borrow, and you can pay back additional funds to create more borrowing power, too. A home equity loan adds a new mortgage, and gives you a lump sum at closing. If your current mortgage is at a low rate, you may want to consider a HELOC or home equity loan. While their rates may be higher, the amount borrowed will be smaller, so you could save money overall.
Ready to take the next step?
Choosing the right lender matters just as much as choosing the right loan. As the nation’s #1 Retail Mortgage Lender, CrossCountry Mortgage offers the experience, flexibility and personalized guidance homeowners need when exploring a cash-out refinance. Whether your goal is to consolidate debt, fund major expenses or put equity to work, a CCM loan officer can help you evaluate your options and move forward with confidence.
Why homeowners choose CCM
- Competitive cash-out refinance loan options across multiple loan programs
- Wide range of loan options
- Flexible qualifications for all financial situations
- A consistent, transparent process from application to closing
- Dedicated loan officers who provide personalized, hands-on service
- Nationwide reach with local expertise
- Zero down payment solutions
Cash-out refinance FAQs
-
It can be a good loan option for homeowners who want to access home equity to meet financial goals, such as consolidating debt or funding major expenses. Whether it’s the right choice depends on your equity, loan terms and long-term plans.
-
A cash-out refinance may cause a short-term credit impact due to the application and credit inquiry. Over time, making on-time payments on your new mortgage may help support a healthy credit profile.
-
A cash-out refinance is repaid through monthly mortgage payments on your new loan. The payment amount and loan term depend on your refinance terms and selected loan program.
-
Timing depends on how long you’ve owned your home, your loan type and lender requirements. In many cases, homeowners must meet minimum ownership and equity guidelines before qualifying.
-
Tax implications vary based on how the funds are used and individual circumstances. It’s best to consult a tax professional to understand how a cash-out refinance may apply to your situation.
-
A cash-out refinance may reduce your home equity and increase your overall loan balance. Borrowers should also consider closing costs and how a new loan may affect long-term financial goals.
CrossCountry Mortgage, LLC is an FHA Approved Lending Institution and is not acting on behalf of or at the direction of HUD/FHA or the Federal government. CrossCountry Mortgage, LLC is not affiliated with or acting on behalf of or at the direction of the Veteran Affairs Office or any government agency. Certificate of Eligibility required for VA loans. Amount of funds received from cash-out refinance will be combined with mortgage principle and paid off over the loan term by borrower.