Definition
Cash-out refinance
A cash-out refinance replaces an existing mortgage with a new, larger loan and pays the borrower the difference in cash, minus closing costs. The amount available is limited by the lender's maximum loan-to-value for cash-out loans, so a borrower can tap only part of their home equity.
The calculation runs in three steps: find the maximum new loan allowed by the cash-out LTV cap, subtract the payoff of the existing mortgage (and any liens being paid off), then subtract closing costs.
Worked example. A home is worth $500,000 and the current mortgage balance is $250,000. If the lender caps cash-out at 80% LTV, the largest new loan is $400,000. Paying off the old loan leaves $150,000, and after an illustrative $8,000 in closing costs, the borrower nets about $142,000. Equity drops from $250,000 to $100,000.
Cash-out caps differ by program, occupancy and property type, and cash-out pricing is usually a bit higher than a rate-and-term refinance on the same file. The new loan also restarts the clock: a borrower ten years into a 30-year loan who takes a new 30-year loan is stretching repayment over 40 years in total.
Common uses include renovations, paying off high-rate debt and funding a down payment elsewhere. Rolling credit card balances into a mortgage can cut the monthly outlay sharply, but it turns unsecured debt into debt secured by the home and spreads it over decades. When the existing first-mortgage rate is far below today's rates, a HELOC or home equity loan may cost less overall. The cash-out refinance calculator shows the new loan, the cash and the payment.
Calculators that use this term
FAQ · 2 questions
Questions about Cash-out refinance
How much cash can I get from a cash-out refinance?
Roughly the lender's maximum cash-out LTV times your home's value, minus your current balance and closing costs. The cap varies by program and property type, so the figure differs from lender to lender.
Is a cash-out refinance better than a HELOC?
It depends on your current rate. If your existing mortgage rate is well below today's rates, keeping it and adding a HELOC or home equity loan can cost less. If rates are similar, a single cash-out loan may be simpler.
PrequalFunnel
Your next borrower is already on your site.
Give them the numbers they came for, and get the lead with those numbers attached.
Free forever on Originator. Upgrade when you want webhooks and your own brand. 14-day free trial on monthly and yearly. Cancel before it ends and you pay nothing.