Current cash-out refinance rates

Written by
Jeff Ostrowski

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What is a cash-out refinance?

A cash-out refinance is a particular type of mortgage refinance, utilized by borrowers whose home has appreciated significantly in value. You swap your current home mortgage for a bigger mortgage, pocketing the difference between the two loans (your current one and the new one) in a lump sum. 

It essentially turns some of the equity you’ve built up in your home into spendable cash. If you need money for your child’s college tuition, home renovations, or any other purpose, a cash-out refinance can get you the funds while (potentially) lowering your mortgage rate.

How does cash-out refinancing work?

Cash-out refinancing works much like any other refinance: You apply for a new mortgage, the lender appraises the home, and — if you’re approved — you receive the new loan and use it to pay off the old.

The big difference is, in a cash-out refinance, you replace your current mortgage with a larger one, receiving the “extra” amount — which reflects a portion of your home’s equity — in cash. While you may also get a lower rate on the new loan, you may still pay more in interest overall because your total loan balance will be bigger, and your monthly payment will likely change as well.

Many mortgage lenders offer cash-out refinancing — here are some of the best. While you might be offered a good deal or perks with your current lender, shop around and compare refinance rates and fees between a few lenders.

How much money can you get in a cash-out refinance?

You can get up to 80 percent of your home’s current value in a cash-out refinance. You typically receive the cash shortly after closing.

Let’s say your home is valued at $300,000 and you have $100,000 left to pay on your mortgage. If you wanted to get $30,000 for a renovation, you’d cash out $30,000 and add that to your $100,000 balance, for a new loan totaling $130,000.

Note that FHA cash-out refinances are also limited to 80 percent of your home’s value, but with a VA cash-out refinance, you can get up to 100 percent.

Is a cash-out refinance a good idea?

If the following circumstances apply to you, a cash-out refinance could help you achieve your goals:

  • You want to renovate your home. If you’d like to do some major remodeling, a cash-out refinance can get you the funds to make it happen. If you’re undertaking an eligible project that increases the value of your home, you can deduct the mortgage interest, too.
  • You want to pay for your child’s tuition costs. This strategy can make sense if student loan interest rates are higher than the rate on your new mortgage.
  • You have high-interest debt. Maybe you’ve accumulated a significant amount of credit card or other high-interest debt and need to consolidate. You can use a cash-out refinance to accomplish this — as a secured debt, the interest rate is likely to be less than the APR for credit card balances.

A cash-out refinance might not be a good idea if:

  • Your interest rate will rise. Ideally, refinancing should lower your interest rate, not increase it. If the cash-out refinance offer you’re considering comes with a higher rate than the one you have now, rethink it.
  • You can’t afford the closing costs. Since closing costs can be 3 percent to 5 percent of your new loan amount, it’s important to make sure that expense won’t outweigh your potential savings, and that you have enough cash on hand if you’re not planning to roll them into the new loan balance.
  • You could have trouble repaying it. Whichever way you choose to use the cash, you need to make sure you’ll be able to repay the loan, or risk foreclosure. It’s best to withdraw only the cash you need, and put it toward projects that will give you some financial benefit, like a home renovation, which boosts your equity, or debt consolidation of higher-interest loans.

Cash-out refinance FAQs

Mortgage rates in other states