Loan Options
Cash-Out Refinance
Is a Cash-Out Refinance Right for You?
If you want to know how much cash you can realistically take out, or what credit score you need to qualify, our team is here to help. Evaluate your financial goals and compare today’s mortgage refinance rates with Belinda Biedebach at Secured Lending Group.
What is a Cash-Out Refinance?
A cash-out refinance is a type of home loan that allows you to tap into the equity you’ve built up in your property. By replacing your current mortgage with a new, larger loan, you can receive the difference in a lump sum of cash. Whether you are looking to secure the best cash-out refinance rates today or just want to understand your options, Secured Lending Group makes the process simple.
How Does a Cash-Out Refinance Work?
- Refinance the Mortgage: You replace your existing home loan with a new mortgage, often securing a different loan term or capitalizing on current refinance rates.
- Borrow Against Your Equity: The new loan amount is higher than your original mortgage balance.
- Get Cash at Closing: You receive the excess funds as a lump sum to use however you choose.
Popular Ways to Use Cash-Out Refinance Funds:
Key Benefits
Home Improvements: Remodeling your kitchen, upgrading your roof, or building an Accessory Dwelling Unit (ADU) to increase your property value.
Debt Consolidation: Paying off high-interest credit cards or personal loans by rolling them into a lower-rate mortgage.
Real Estate Investing: Using your equity as a down payment on an investment property.
Education or Emergency Expenses: Covering college tuition or unexpected major life events.
Cash-Out Refinance vs. Home Equity Loan (HELOC)
Many homeowners wonder if they should choose a cash-out refi or a HELOC. A cash-out refinance replaces your primary mortgage entirely, leaving you with one monthly payment. A HELOC acts as a second mortgage, giving you a revolving line of credit. If current refinance rates are lower than your existing mortgage rate, a cash-out refinance is often the smarter financial move.
Pros and Cons of a Cash-Out Refinance
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Benefits: Access large amounts of capital, consolidate high-interest debt, and potentially secure a lower interest rate on your primary mortgage. Furthermore, the cash you receive is generally not considered taxable income (consult your tax advisor).
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Considerations: Refinancing requires paying closing costs and fees. It will also reduce your current home equity and may result in a higher monthly mortgage payment depending on your new rate and term.
Cash-Out Refinance Requirements: How Much Can You Borrow?
To qualify for a conventional cash-out refinance, you need sufficient home equity. Lenders look closely at your Loan-to-Value (LTV) ratio.
Generally, homeowners can refinance and borrow up to 80% of their home’s appraised value.
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Example: If your home is valued at $500,000 and you currently owe $300,000, you have $200,000 in equity. You may be able to take out a new loan for up to $400,000 (80% LTV), leaving you with up to $100,000 in cash after paying off the original mortgage.
Frequently Asked Questions About Cash-Out Refinances
To qualify for a conventional cash-out refinance, most lenders require you to leave at least 20% equity in your home. This means you can typically borrow up to 80% of your home’s current appraised value (an 80% Loan-to-Value ratio).
For a conventional cash-out refinance, a minimum credit score of 620 is typically required. However, having a credit score of 700 or higher will help you secure the best mortgage refinance rates available.
No. The funds you receive from a cash-out refinance are considered loan proceeds, not income. Therefore, the cash is generally tax-free. Furthermore, if you use the funds to buy, build, or substantially improve your home, the interest on the new loan may be tax-deductible (consult a tax advisor for personalized advice).
Conventional loan guidelines typically require a “seasoning” waiting period of at least 6 to 12 months from the date you closed on your home before you can tap into its equity with a cash-out refinance.
Yes. Just like your original mortgage, a cash-out refinance involves closing costs, which usually range from 2% to 5% of the total loan amount. These costs cover the appraisal, origination fees, and title services. Many borrowers choose to roll these closing costs into their new loan balance so they don’t have to pay them out of pocket.
Yes. Because the amount you can borrow is based on the current market value of your home, lenders will require a new appraisal to confirm your property’s value and accurately calculate your new Loan-to-Value (LTV) ratio.
A cash-out refinance replaces your current mortgage entirely with a new loan and a single monthly payment, which is ideal if current interest rates are lower than your existing mortgage rate. A Home Equity Line of Credit (HELOC) is a second mortgage that allows you to draw funds as needed, which is often better if you currently have a historically low interest rate on your primary mortgage that you don’t want to lose.
At a glance
Maximum Borrowing Limit (LTV):
Up to 80% Loan-to-Value (you must leave at least 20% equity in the home).
Minimum Credit Score:
620 (higher scores secure the lowest rates)
Max Debt-to-Income (DTI):
Typically capped at 45% to 50%, depending on overall credit profile and assets.
Payout Method:
Lump-sum, tax-free cash disbursement delivered within 3–4 business days of closing.
Waiting Period (Seasoning):
Typically must own the property for at least 6 to 12 months before taking cash out.
See what you qualify for
Pre-approval takes about ten minutes online and comes back within a day. No cost, no obligation, no effect on your credit score to find out.