What Is Cash-Out Refinancing?

Cash-out refinancing replaces your current mortgage with a new one, while allowing you to basically take cash straight out of the equity in your home.

How does it help me?

Most people use cash-out refinancing to accelerate toward their financial goals. Common uses include:

  • Home improvements. Add value to your property by renovating, expanding or repairing your home—or by acquiring an adjacent lot.
  • Debt consolidation. Simplify your finances by wrapping your debts into one loan with a lower interest rate.
  • Educational expenses and more. Pay for tuition, fees, books—or any other significant expenses you may have.

How much cash can I get?

This depends on your financial situation, the intended use of your funds and your lender. Speak with your lender about the details of your situation to request an estimate. Many factors are involved, such as your credit score, salary, home value and loan type.

How do I get the cash?

The cash is paid in a lump sum after closing. In most cases, you’ll receive a check or a wire transfer.

What is the cost?

First, you'll have to pay for a home appraisal, which is almost always paid up front by the home owner. Then you'll have closing costs, just like any mortgage. Many people include closing costs in their financing to avoid paying the large expense out of pocket.

What are the tax considerations?

Speak to your tax advisor about your plans for cash-out refinancing. The IRS has specific guidelines(opens in a new tab) about the tax deductibility of mortgage interest.

How is cash-out refinancing different from a home equity loan?

Compared to other options like home equity loans and lines of credit, you may find that the interest rate for refinancing is lower. In addition, refinancing provides the opportunity to change your mortgage type and term.

On the other hand, your closing costs will be higher than a home equity loan, and home equity lines of credit do not require closing costs.

Make sure to consider all the options to find the one that works best for you.

Keep it up. You're getting smarter about home buying.

Related topics

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Loans, lines of credit and credit cards are subject to credit approval.

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