Loan guide

Cash-out refinance

Reviewed by the Editorial Team · Updated July 10, 2026 · 6 min read

A cash-out refinance replaces your existing mortgage with a larger one and pays you the difference in cash. The new rate applies to your entire balance, not just the cash you take.

Key takeaways
  • A cash-out refinance replaces the existing mortgage with a larger one and pays the difference to the borrower in cash at closing.
  • The new, often different rate applies to the entire loan balance, not just the cash taken out, raising the overall cost.
  • Closing costs of roughly 2-5% apply to the full new loan amount, and the home's equity cushion shrinks as a result.
  • It suits large, one-time expenses when current rates are favorable enough to make resetting the whole mortgage worthwhile.
Max LTV
Typically 80% conventional; higher for VA
Rate applies to
Entire new balance
Closing costs
About 2–5% of the new loan
Best for
Large sums when rates are favorable
Today's 30-year fixed rate 6.49% avg · Freddie Mac PMMS · as of Jul 9, 2026
Estimated monthly payment at today's rate
Loan amountMonthly P&I
$250,000$1,579/mo
$400,000$2,526/mo
$600,000$3,788/mo
Principal & interest only, 30-year term at 6.49%. Taxes, insurance and any mortgage insurance are extra. See today's rates →

How a cash-out refinance works

You take out a new mortgage larger than what you currently owe. The new loan pays off your old one, and the remaining amount comes to you as cash at closing.

  • An appraisal establishes your home's current value
  • The new loan pays off your existing mortgage in full
  • You receive the difference as a lump sum
  • The new rate and term apply to the whole balance

Unlike a HELOC or home equity loan, there's no second lien — you end up with one mortgage, on new terms.

Where it gets expensive

The catch is scope: the new rate applies to your entire mortgage, not just the cash you pull out. If your current rate is well below today's rates, you give that low rate up on every dollar you already owed.

The rate math that matters

Compare today's rate against your existing rate on the full balance — not just against the amount you're borrowing — before you refinance.

Closing costs run about 2–5% of the new loan amount, and the loan term resets — both higher-cost than opening a HELOC or home equity loan.

Is cash-out refinance interest tax-deductible?

Only the portion used to buy, build, or substantially improve the home securing the loan qualifies for the mortgage interest deduction under current federal rules. Cash used for other purposes — paying off credit cards, tuition, a car — isn't deductible, even though it's part of the same mortgage. Check with a tax professional for your situation.

Who a cash-out refinance fits

This option fits borrowers whose current rate isn't worth protecting, or who need one very large sum.

  • Current mortgage rate at or above today's rates
  • A need for a larger sum than a second lien typically allows
  • A preference for one loan and one payment
  • No interest in keeping a separate first mortgage

Skip it if your existing rate is well below current rates — a HELOC or home equity loan lets you tap equity without disturbing it.

Cash-Out Refinance: pros and cons

Pros
  • Single loan and single payment
  • Often cheaper than a HELOC or card
  • Funds large expenses in one lump sum
  • Locks in a new fixed rate
Cons
  • Resets your entire loan to a new rate
  • Closing costs apply to the full new balance
  • Can extend your amortization if term restarts
  • Reduces your home equity cushion

Requirements at a glance

  • Loan-to-value generally at or below 80% (higher for eligible VA borrowers)
  • Credit score typically in the mid-600s or above
  • Debt-to-income ratio within the lender's limit
  • Home appraisal to confirm current value
  • Often a minimum seasoning period since your last refinance
  • Cash reserves depending on loan type and lender
Put the numbers to work
Rates Today's Refinance rates Calculator Cash-Out Refinance Calculator Calculator Mortgage Refinance Calculator

Frequently asked

Is a cash-out refinance better than a HELOC?

It depends on your current rate. If your existing mortgage rate is near or above today's rates, a cash-out refinance can make sense; if it's well below, a HELOC or home equity loan avoids losing that rate on your whole balance.

How much cash can I take out?

Conventional cash-out refinances typically cap loan-to-value around 80% of your home's appraised value. VA cash-out loans allow higher limits for eligible borrowers, subject to lender and program rules.

Does a cash-out refinance reset my loan term?

Yes — you're taking out an entirely new mortgage, so the term restarts (commonly 30 years) unless you specifically choose a shorter one. That can lower your payment but extend how long you're paying interest.

Is cash-out refinance a good thing?

It can be — if the cash goes toward something that builds value or pays down higher-rate debt, and you can get a rate close to your current one.

It's less of a good thing if it means giving up a low rate on your entire balance just to access a small amount of cash.

What are the rules for a cash-out refinance?

html">FHA allows up to 80% as well. Most lenders require you to have owned the home at least six months (12 for FHA) and to meet the same credit and income standards as a purchase loan; investment property limits are usually lower.

How does a cash-out refinance compare to a home equity loan?

A cash-out refinance replaces your entire mortgage at a new rate and pays you the difference in cash; a home equity loan leaves your first mortgage untouched and adds a separate second loan.

Cash-out refinancing tends to make sense when today's rates are near your current rate — otherwise a second loan avoids resetting your primary rate.

Can you get a cash-out refinance with bad credit?

It's possible with a lower score than a purchase loan in some cases — FHA cash-out refinances allow scores as low as 580-620 depending on the lender — but expect a higher rate and, on conventional loans, pricing adjustments that get costlier the lower your score.

Sources
Lenders that offer Cash-Out Refinance
loanDepotFreedom MortgageMr. CooperNewDay USARocket MortgagePennyMac

Compare all 60 lender reviews

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Reference data

This guide is general information, not a lending decision. Program rules and dollar limits change — verify current figures with a licensed lender and confirm licensing at NMLS Consumer Access. See all loan types.