Cash-Out Refinance
A cash-out refinance replaces your existing mortgage with a new, larger loan — and you receive the difference in cash. For example, if your home is worth $500,000 and you owe $250,000, you might refinance into a $350,000 loan and pocket $100,000. The cash can be used for renovations, debt consolidation, or any other purpose.
Cash-out refinances are one of the most common ways homeowners access their equity. Most lenders allow you to borrow up to 80% of your home's appraised value (leaving 20% equity). On a $600,000 home with a $300,000 balance, the maximum cash-out would be $180,000 ($600,000 × 80% = $480,000 minus $300,000 owed).
The tradeoff is that you're taking on a larger mortgage, potentially at a higher rate than your existing loan (especially if you refinanced during a low-rate period). If you're replacing a 3.5% mortgage with a 7.5% mortgage to access equity, run the numbers carefully — the interest cost on that cash may exceed what a personal loan or HELOC would charge.
VA loans offer cash-out refinances up to 100% of the home's value for eligible veterans. FHA allows cash-out up to 80%. Conventional loans cap at 80%. Your credit score, debt-to-income ratio, and home equity all affect your eligibility and rate.
Key Takeaway
A cash-out refinance replaces your existing mortgage with a new, larger loan — and you receive the difference in cash. For example, if your home is worth $500,000 and you owe $250,000, you might refinance into a $350,000 loan and pocket $100,000. The cash can be used for renovations, debt consolidation, or any other purpose.
Related Terms
Frequently Asked Questions
Most conventional lenders allow you to borrow up to 80% of your home's value. With a $500,000 home and $250,000 owed, you could cash out up to $150,000.
The application triggers a hard credit inquiry (minor, temporary impact). Taking on more debt can also affect your score, but responsible use typically has minimal long-term impact.
Generally no — it's loan proceeds, not income. However, the interest may not be fully deductible unless the funds are used for home improvement. Consult a tax advisor.
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