Written and reviewed by Jack Gladden, Senior Loan Officer, NMLS #1470164
Updated · 4-minute read · How these guides are written
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Cash-out refinancing in brief
- What it is
- A new, larger mortgage that pays off your current one and gives you the difference in cash.
- How much
- Usually up to 80% of your home’s value on a primary home with a conventional or FHA loan; VA can go higher; less on rentals.
- Timing
- Conventional lenders usually need your current loan to be 12 months old and you on title for six months.
- Taxes
- The cash isn’t income, so it isn’t taxed; ask a tax advisor about deducting interest.
- Costs
- Closing costs like any refinance, typically 2–5% of the new loan, plus a new rate on the whole balance.
- The alternative
- If your current rate is low, a HELOC or second mortgage can get you cash without replacing it.
How much you can take out.
| Example | Amount |
|---|---|
| Home value | $600,000 |
| Up to 80% of the value | $480,000 |
| Less your current balance | −$300,000 |
| Cash before closing costs | $180,000 |
Illustrative only. The appraisal sets the value, and closing costs come out of the cash or are added to the loan.
| Loan type | Typical maximum |
|---|---|
| Conventional, primary home | 80% of the value |
| Conventional, rental property | About 70–75%, depending on the number of units |
| FHA | 80%, if you’ve lived in the home at least a year |
| VA | Up to 90–100% with some lenders, for eligible veterans |
| DSCR (investment) | Often around 75%; see DSCR loans |
Want to know your number?
Send me your home’s estimated value, your balance and rate, and what the cash is for. I’ll compare cash-out with a HELOC.
Timing and ownership rules.
- Your current loan
- For a conventional cash-out, the first mortgage being paid off must be at least 12 months old.
- Time on title
- At least one borrower on title for six months; inherited property and property awarded in a divorce are exceptions.
- Bought with cash?
- A delayed-financing exception can let you take your money back out soon after a cash purchase.
- Listed for sale
- The home must be off the market before you refinance.
Cash-out refinance or HELOC?
| Cash-out refinance | HELOC or second mortgage | |
|---|---|---|
| Your first mortgage | Replaced with a new one | Kept as it is |
| Rate | One rate on the whole balance, often fixed | Usually variable for a HELOC; fixed for a second mortgage |
| Costs | Full refinance closing costs | Usually lower |
| Best when | Today’s rate is near or below yours, or you need a large sum | Your current rate is low and you want to keep it |
If your current rate is well below today’s, replacing the whole loan to borrow a part of its value can cost more over time. See HELOCs and second mortgages.
When cash-out makes sense.
A good fit if
- Paying off high-interest debt, with a plan not to run it up again
- Home improvements that add value
- Buying your next property or funding a down payment
- Replacing a variable-rate or balloon loan at the same time
Look elsewhere if
- Your current rate is far below today’sBetter: a HELOC or second mortgage
- You need cash for everyday spendingBetter: rebuild your budget first; your home secures the loan
- You’ll sell soonBetter: the closing costs may not pay off
The trade-offs.
- Your home secures it. Turning other debt into mortgage debt puts your home at risk if you can’t pay.
- A new rate on everything. Even if you only need a little cash, the whole balance takes today’s rate.
- A longer payoff. A new 30-year term can raise the total interest you pay.
- Pricing. Cash-out loans are priced a little higher than rate-and-term refinances.
How we get started.
Tell me the goal
How much cash you need, for what, and your current loan details.
I compare
Cash-out refinance against a HELOC or second mortgage, with total cost for each.
Appraisal
The value sets how much you can take.
Close and fund
On a primary home, funds arrive after the three-day right to cancel.
Cash-out refinancing, answered plainly.
How does a cash-out refinance work?
You take a new mortgage larger than what you owe; it pays off the old loan and you receive the difference in cash at closing. See also: Cash-out refinance calculator.
Is a cash-out refinance ever a good idea?
Yes, when today’s rate is near or below yours, or the cash replaces costlier debt or funds something that adds value. If your current rate is low, a HELOC is often cheaper.
Does a cash-out refinance give you 100% of your equity?
Usually not: most loans leave at least 20% equity in a primary home. VA loans can go higher with some lenders.
Is it hard to qualify for a cash-out refinance?
You need enough equity, credit around 620 or higher for conventional, and income to support the new payment.
Do you pay taxes on cash-out refinance money?
The cash isn’t taxed as income because it’s borrowed. Whether the interest is deductible depends on how you use it; ask a tax advisor. See also: Cash-out refinance calculator.
How soon can I do a cash-out refinance?
For conventional loans, usually once your current mortgage is 12 months old and you’ve been on title six months; FHA requires a year living in the home.
Which lender is best for a cash-out refinance?
The one with the best mix of rate, fees and loan-to-value limit for your file, and that changes often. I compare lenders on all three, which a single bank can’t do. See also: Cash-out refinance calculator.
Second mortgage & HELOC
Refinance
Renovation
DSCR & investor