Use the equity in your home to pay for home improvements, college tuition or a down payment on a second home.
A cash-out refinance is a type of mortgage refinance that lets you convert your home equity into cash. It replaces your existing home mortgage with a new, larger loan, and pays you the difference between the new and old mortgage amount at closing. Accessing equity and using the funds to consolidate debt or fund a major project are just a few reasons to use a cash-out refinance.
Use the equity in your home to pay for home improvements, college tuition or a down payment on a second home.
Use the money to pay off high-interest debt, such as credit cards, personal loans and auto loans.
If you’d like to take advantage of lower interest rates and get cash in hand, cash-out refinancing may be the right choice for you. Keep in mind that while cash-out refinance rates may be slightly higher than those for traditional refinancing, the potential benefits of this type of loan can be significant.
As an example, let’s say your home is worth $300,000. The remaining balance on your mortgage is $100,000.
$300,000 – $100,000 = $200,000
That means you have $200,000 in equity.
In general, the maximum loan amount that lenders allow is 80% of your home’s value (up to 90% in some cases). This is called loan-to-value (LTV).
$300,000 x 80% LTV = $240,000
That means you could refinance your home for up to $240,000.
If you choose to refinance your home for $240,000, you can subtract the amount you still owe on your home from the refinance amount to estimate the cash you can borrow.
$240,000 – $100,000 = $140,000
That means you can borrow up to $140,000.
Here are some of our popular options for a cash-out refinance. Or you can compare all loans and rates.
Conventional fixed-rate refinance loans
Why it may be right for you:
Adjustable-rate mortgage (ARM)
Why it may be right for you:
FHA refinance loans
Why it may be right for you:
A cash-out refinance lets you refinance your mortgage and borrow money at the same time. You apply for a new mortgage that pays off your existing one (and any liens on your property) and withdraw a portion of your home’s equity as a lump sum.
No. The cash you collect from a cash-out refinance isn’t taxed. The money you receive is a loan you take out against your home’s equity, and isn’t considered income.
A cash-out refinance typically takes 30 to 45 days to complete. However, the length of time may vary depending on the size of your property, how complicated your finances are and how long it takes to complete your appraisal and inspection.
A cash-out refinance lets you negotiate new mortgage terms and borrow funds for one-time expenses. A home equity loan allows you to borrow against the equity in your home and pay it back with a steady repayment schedule. Choosing a cash-out refinance or home equity loan comes down to the terms that are best for you and your situation.
A VA cash-out refinance is designated for active or retired members of the military and eligible surviving spouses. It’s a government-backed loan that allows you to replace your current mortgage with a new one under different terms and also borrow cash from the equity in your home. It comes with additional benefits too, like low or no equity options, no mortgage insurance requirement and flexible qualification guidelines.
An FHA cash-out refinance differs from a conventional cash-out refinance in that the Federal Housing Administration insures your new mortgage. With mortgage insurance, your lender is protected against any loss if you fail to pay your mortgage. And because lenders take on less risk, they’re able to offer you more options. Other benefits include a consistent rate and flexible qualification guidelines for qualified borrowers.
It you’re thinking about a home improvement project but aren’t sure of the cost, we’re happy to help. Just answer a few quick questions and we’ll give you a personalized estimate based on the average cost of labor and materials where you live.
Good if interest rates decrease
Better for one-time expenses
Better for ongoing access to funds5