What is a cash-out refinance?

A cash-out refinance replaces your current mortgage with a new loan that is larger than your current loan balance—not necessarily larger than your original purchase loan. You receive the difference between the new loan amount and what you owe now, in cash at closing after costs. You can use the cash for home improvements, debt consolidation, or other goals. Your new loan has a new rate and term.

How is cash-out refinance different from a HELOC or home equity loan?

A cash-out refinance replaces your first mortgage with one new loan larger than your current loan balance—you get cash from the amount above your payoff (after closing costs). A HELOC or home equity loan is a second lien—you keep your existing mortgage and add a separate line or loan. Cash-out refi can have a lower rate but resets your loan term and has closing costs; HELOCs and home equity loans leave your first mortgage unchanged.

When does a cash-out refinance make sense?

It can make sense when current rates are low and you want to tap a large amount of equity with a new first mortgage larger than your current loan balance—e.g., for a major renovation or debt consolidation. Compare the new payment and closing costs to a HELOC or home equity loan to see which is better for you.

What are typical closing costs for a cash-out refinance?

Expect 2-5% of the loan amount. Costs include appraisal, title insurance, origination fees, and recording fees. Some lenders offer no-closing-cost options by rolling costs into the loan or a slightly higher rate.

Cash-Out Refinance: Tap Your Equity

Replace your mortgage with a new loan larger than your current loan balance and receive the difference in cash. New rate and term. Best when rates are attractive and you want a large lump sum or to reset your term. Compare rates below.

Connect with a lender

Couple meeting with mortgage broker in light, relaxed setting

Cash-Out Refinance Highlights

Replace your first mortgage with a new loan larger than your current loan balance. You get one new rate, one new term, and cash at closing. Often lower rate than a second lien—but resets your mortgage.

Replaces your mortgage

One new first mortgage replaces your current one for an amount larger than your current loan balance. You get a new rate and term, plus cash at closing.

Often lower rate

First-lien rates can be lower than second liens (HELOC, home equity loan). Compare the new payment to your total cost today.

Single loan

One mortgage, one payment. No second lien—simpler than adding a HELOC or home equity loan.

2–5% closing costs

Expect appraisal, title, origination, recording. Some lenders offer no-closing-cost options (roll into loan or higher rate).

How a cash-out refinance works, step by step

Illustration: $400,000 appraisal, 80% loan-to-value limit. Your numbers will differ.

1
Apply for a new loan above your current balance
The new loan amount is larger than your current loan balance—payoff plus cash out.
The lender underwrites you like a purchase: income, assets, credit, and a new appraisal. They set a maximum loan amount based on loan-to-value rules; cash out is roughly new loan minus payoff of the old mortgage and closing costs.
Worked example
Appraisal: $400,000 80% loan-to-value limit, ceiling on a new loan: $320,000 Old loan payoff: $200,000 Ceiling minus payoff: $320,000 - $200,000 = $120,000 available for closing costs and cash to you. How that $120,000 can split: Closing costs: about $9,600, about 3% of the new loan Cash to you: $110,400 at closing
2
Close: old loan paid, cash to you
The lender funds your new mortgage at closing; that money pays off the old loan and costs, and the rest is cash to you.
At closing, the title or escrow company pays off your previous mortgage from the new loan funds. What is left after closing costs and payoffs is what you receive at closing. You now have one new first mortgage—not a second lien on top of the old one.
Worked example
New loan amount: $320,000 Pay off old loan: -$200,000 Closing costs: -$9,600 about 3% of loan ──────────────────────────── Cash to you: $110,400
3
One payment on the new loan
A single monthly payment at the new rate and term.
Your payment is based on the full new balance, cash-out included. Term might reset to something like 30 years or shorten if you pick a shorter product—compare total interest cost, not just the rate.
Worked example
You have one new mortgage for $320,000—the cash you received is part of that same balance.
4
Going forward
Equity rebuilds as you pay down; no separate home equity line of credit to repay.
You are not juggling a first mortgage plus a second line—you have restructured the whole debt. If you need more equity later, you would look at another refinance or a second lien, depending on rates and goals.
Worked example
Before: $400,000 value - $200,000 loan = $200,000 equity After: $400,000 value - $320,000 loan = $80,000 equity About $120,000 equity out: about $110,400 cash + about $9,600 costs Equity can grow again as you pay down and if the home appreciates.

Why a Cash-Out Refinance Works

When rates are attractive and you want a large lump sum—major renovation, debt consolidation—a cash-out refi can deliver more than a HELOC or home equity loan, often at a lower rate. You take out a new first mortgage larger than what you owe today; the difference, minus closing costs, is cash at closing.

Lower rate potential

First-lien rates often beat second liens; can lower overall cost.

Large lump sum

Big lump sum for renovation or debt consolidation.

Reset your term

Extend or shorten term—30-year lowers payments; shorter shortens payoff.

Cash-Out Refinance At a Glance

Closing costs

Expect 2–5% of the loan amount. Appraisal, title, origination, recording. No-closing-cost options by rolling into loan or slightly higher rate.

Cash-out refi guide →

Timeline

Full mortgage underwriting—typically 30–45 days. Longer than HELOC (2–4 weeks) or home equity loan (3–5 weeks).

Have pay stubs, tax returns, and mortgage statement ready to speed things up.

Cash-out vs alternatives

Cash-out replaces your first mortgage with a new loan larger than your current loan balance. Prefer to keep your mortgage? A HELOC or home equity loan adds a second lien without replacing your first.

Compare all options →

Compare Home Equity Options

Feature	HELOC	Home Equity Loan	Cash-Out Refi
Payout	Revolving Line	Lump Sum	New Mortgage
Interest Rate	Variable	Fixed	Fixed
First Mortgage Rate	Untouched	Untouched	Replaced
Best For	Ongoing renovations	One-time projects	Debt overhaul
Time to Close	2–4 weeks (Fastest, often no full appraisal)	3–5 weeks (Requires more verification)	30–45 days (Full mortgage underwriting process)

Next step

Ready to speak with a lender?

Connect with a licensed lender to see your rate and options—most approvals in 24 hours. No obligation.