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Cash-out refinance

Replacing your mortgage with a new, larger one and taking the difference, minus closing costs, in cash.

What It Means

A cash-out refinanceRefinancingReplacing a loan you already have with a new one, usually to get a lower rate, a different term or a different payment. See more is a kind of refinancing in which you take out a new mortgageMortgageA loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term. See more for more than you owe on the current one. The new loan pays off the old mortgage, and you receive the difference in cash, less closing costsClosing costsThe fees and upfront charges you pay to finalize a mortgage, apart from the down payment, itemized on your Loan Estimate and Closing Disclosure. See more. You end up with one mortgage, a new rate and a new term, and a smaller share of the home that's yours free of debt.

Try It: Estimate the Cash From a Cash-Out Refinance

Example numbers to start. Put in your home's value, what you owe and a quoted rate.

New loan$360,000
Closing costs$10,800
Cash to you$149,200
New monthly principal and interest$2,334.95
Change each month$934.95

How People Say It

  • "We did a cash-out refi to pay for the addition."
  • "Rates were lower, so we pulled some equity out when we refinanced."
  • "How much can we take out and stay at eighty percent?"

The Breakdown

Worked example. A home worth $450,000 has $200,000 left on its mortgage, with a principal and interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more payment of $1,400 a month (an example). The owners refinance to 80% of the value at an example rate of 6.75% over 30 years, with closing costs of 3%:

Amount
New loan (80% of $450,000)$360,000
Pays off the old mortgage$200,000
Closing costs at 3%$1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more,800
Cash to the owners$149,200
New monthly principal and interest$2,334.95
Change from the old payment$934.95 more
Interest over 30 years, if kept to termAbout $480,583

What the result means. The $149,200 is borrowed money on a fresh 30-year clock, so its true cost is the higher payment for decades, plus the closing costs paid up front. Their equityHome equityThe part of your home you own outright: its current value minus everything you still owe on loans secured by it. See more drops from $250,000 to $90,000. The same new loan also resets the rate on the $200,000 they already owed, which helps if the new rate is lower and hurts if it's higher.

Good to Know

Under Fannie Mae's and Freddie Mac's rules, read in September 2026, a cash-out refinance on a one-unit home you live in generally tops out at 80% of its value, and 75% for a two- to four-unit home you live in; Fannie Mae generally requires at least one borrower to have been on the title for six months first. Other loan programs set their own limits. When the home is your main residence, the CFPB and FTC describe a three-business-day right to cancel after signing. IRS Publication 936 for 2025 says interest is deductible only on the part of the loan used to buy, build or substantially improve the home, so interest on cash spent elsewhere isn't.

FAQ

How much cash can I get from a cash-out refinance?

For a one-unit home you live in, Fannie Mae's and Freddie Mac's rules generally cap the new loan at 80% of the home's value. Subtract what you owe and the closing costs to get the cash, as the tool above does.

What's the difference between a cash-out refinance and a HELOC?

A cash-out refinance replaces your mortgage with one larger loan. A HELOCHELOCA home equity line of credit: a revolving line secured by your home that you can draw on, repay and draw on again during a set draw period. See more leaves your mortgage in place and adds a second, usually variable-rateVariable interest rateAn interest rate that can rise or fall over the life of a loan or card because it's tied to an index, such as the prime rate, plus a set margin. See more, line of credit you draw on as needed.

Can I deduct the interest on a cash-out refinance?

Only on the part used to buy, build or substantially improve the home, according to IRS Publication 936 for 2025, and only if you itemize. Ask a tax professional before counting on it.

Do It in Buhata

Bills, Debt Payoff

With Plus, update the mortgage in Bills to the new payment on the day the refinance closes, so your plan reflects what the house now costs each month.

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Related Terms and Categories

  • Refinancing

    Replacing a loan you already have with a new one, usually to get a lower rate, a different term or a different payment.

  • Home equity

    The part of your home you own outright: its current value minus everything you still owe on loans secured by it.

  • HELOC

    A home equity line of credit: a revolving line secured by your home that you can draw on, repay and draw on again during a set draw period.

  • Home equity loan

    A loan secured by your home's equity that pays out one amount at the start and is usually repaid at a fixed rate; often called a second mortgage.

  • Closing costs

    The fees and upfront charges you pay to finalize a mortgage, apart from the down payment, itemized on your Loan Estimate and Closing Disclosure.

  • Amortization

    Paying off a loan through regular scheduled payments, each split between interest and principal, until the balance reaches zero at the end of the term.

Debt and credit

Sources

Freddie Mac, "Maximum LTV/TLTV/HTLTV Ratio Requirements for Conforming and Super Conforming Mortgages"; Fannie Mae, "Eligibility Matrix"; Fannie Mae Selling Guide, "B2-1.3-03, Cash-Out Refinance Transactions"; Consumer Financial Protection Bureau, "Can I change my mind after I sign the loan closing documents for my second mortgage or refinance? What is the right of rescission?"; Freddie Mac, "What Are Closing Costs and How Much Will I Pay?"; Internal Revenue Service, "Publication 936 (2025), Home Mortgage Interest Deduction"

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