Cash-out refinance: Access your home equity

Accessing your home equity

If you've built up equity in your home, a cash-out refinance lets you tap into that value while potentially lowering your interest rate. You get a new, larger mortgage and receive the difference in cash.

How cash-out refinancing works

Let's say your home is worth $500,000 and you owe $300,000. You have $200,000 in equity.

With a cash-out refinance, you might take a new loan for $400,000:

• $300,000 pays off your existing mortgage
• $100,000 goes to you as cash
• You still keep $100,000 in equity

Most lenders let you borrow up to 80% of your home's value (sometimes more with certain programs). So on a $500,000 home, the maximum loan would typically be $400,000.

Common uses for cash-out funds

Home improvements: Kitchen remodel, bathroom updates, adding a bedroom. These improvements can increase your home's value while making it more enjoyable to live in.

Debt consolidation: Credit card interest rates often exceed 20%. If you're carrying balances, consolidating that debt into a 6-7% mortgage rate can save thousands in interest and simplify your payments.

Education expenses: Funding college or other education without high-interest student loans.

Investment opportunities: Some people use equity for down payments on investment properties or other investments.

Emergency fund: Building cash reserves for unexpected expenses.

Cash-out refinance vs. HELOC

Both tap your home equity, but they work differently:

Cash-out refinance: Replaces your current mortgage with a new, larger one. Fixed rate, predictable payments, you get a lump sum at closing.

HELOC: Keeps your existing mortgage and adds a line of credit. Variable rate (usually), you draw as needed over time, interest-only payments during draw period.

Which is better depends on your situation:

• Need a specific amount for a defined purpose? Cash-out refinance
• Want ongoing access to equity? HELOC
• Current mortgage rate is higher than today's rates? Cash-out refinance
• Current mortgage rate is very low? HELOC

We can help you evaluate both options.

Requirements for cash-out refinancing

Equity: You'll typically need at least 20% equity remaining after the cash-out. So if you want to borrow 80% of your home's value, you need 20% left over.

Credit score: Most programs require 620+, though 680+ gets better rates.

Debt-to-income ratio: Your total monthly debts (including the new, larger mortgage) should stay below 43-45% of your income.

Waiting period: If you recently purchased, most lenders require you to wait 6-12 months before a cash-out refinance.

Interest rates on cash-out refinances

Cash-out refinance rates are typically 0.125-0.5% higher than rate-and-term refinance rates. The larger your cash-out amount (as a percentage of home value), the higher the rate adjustment.

Even with this premium, the rate is usually much lower than credit cards, personal loans, or other consumer debt.

Tax considerations

Mortgage interest is deductible, but only if the funds are used for home improvements. If you use cash-out funds for other purposes (like debt consolidation or education), that portion of the interest may not be deductible.

Tax rules change regularly. Consult a tax professional for your specific situation.

Things to consider

You're resetting your loan: If you're 10 years into a 30-year mortgage, you'll have a new 30-year clock (or whatever term you choose). You can opt for a shorter term to avoid extending your payoff date.

Closing costs: Cash-out refinances have the same closing costs as other refinances (2-4% of loan amount). These can be rolled into the loan.

Your payment will increase: A larger loan means a larger payment, unless you're dropping your rate significantly.

Using your home as collateral: Your home secures this debt. Make sure you're comfortable with that before proceeding.

The process

1. Get pre-qualified: We'll evaluate your equity position and borrowing options
2. Lock your rate: Once you're ready, we secure your interest rate
3. Appraisal: Confirms your home's current market value
4. Underwriting: Standard review and approval process
5. Closing: Sign papers and receive your cash within a few days

Most cash-out refinances close in 30-45 days.

See how much you could access

Your equity position determines your options. Get a quote to see how much you could borrow, or schedule a call to discuss your goals.