Your Guide to Getting Cash Out: 
Cash-Out 101

A cash-out refinance can be used in many different ways including debt consolidations, home improvements, or even to help purchase another property

What Is A Cash-Out Refinance?

When you refinance your home loan into a larger loan amount than what you currently owe, and receive the remaining funds at closing, this is considered a cash-out refinance.

There are also scenarios where you may not receive funds at closing, but are paying off other debts or a secondary loan — like a Home Equity Line of Credit (HELOC) — that might also be considered cash-out. This is usually the case unless the secondary loan was part of the initial purchase of your home.

A cash-out refinance allows you to take money out of the equity in your home, up to a certain loan-to-value percentage. Since your loan amount is increasing, investors see this as an increase in risk and charge slightly higher interest rates for cash-out loans compared to rate-and-term refinances.

Regular rate-and-term refinances are limited to financing the amount that you owe on your current loan. You may be able to roll in the costs of refinancing and even receive a small sum at closing though. For conventional loans, this is limited to 2% of the loan or $2,000 — whichever is less. For other loan types, like FHA or VA loans, this may be limited to $500 or less.

  • Consolidate Debt

    Save money monthly by consolidating your higher interest debts into one lower monthly payment using the equity you have built in your home. Right now, first mortgage interest rates are some of the least expensive borrowing options — lower than credit cards, personal loans, and separate home equity loans.

  • Renovate Your Space

    Home improvements are an investment into your space that you can fund with your own equity instead of out-of-pocket. Making your house into your dream home, or just updating a few key areas and keeping up with necessary repairs can offer a great return on investment.

  • Fund What Matters Most To You

    Whether it's upcoming college tuition, your down payment on a vacation home, or start-up capital for a new business, you can use your home's equity to pay for these important expenses.

What Is the Difference Between a Cash-Out Refinance and a Home Equity Loan?

Completing your cash-out refinance involves paying off your current mortgage and replacing it with a new, higher loan amount. The entire loan amount is under the same interest rate and loan term going forward, and you have one new monthly payment.

Getting a home equity loan or line of credit involves creating a secondary loan (sometimes referred to as a subordinate lien) behind your current first mortgage. It does not involve changing the terms of your current mortgage and creates another separate monthly payment on its own terms. Often this is a higher, adjustable interest rate repaid over a shorter period of time.


Getting approved starts here.

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