Cash-out refinance: put your home equity to work

Common uses

• Home improvements

  A new roof, an addition or a kitchen remodel.

• Paying off higher-interest debt

  Credit cards or personal loans, so you have one payment instead of several.

• Education costs

  Tuition and school costs for you or your children.

• Large expenses

  Medical bills or helping a family member.

Using your home to pay off debt can lower your monthly bills, but the debt is now tied to your house. We help you think through whether it makes sense.

Cash-out refinance or HELOC?

Both let you use your equity. The main difference is what happens to your current mortgage.

• Cash-out refinance

  Replaces your whole mortgage. It can make sense if your current rate is higher than what you could get now, or if you want one payment.

• HELOC

  A separate line of credit, so your first mortgage stays as it is. It can make sense if you have a low rate you want to keep or need money in stages. See HELOCs and second mortgages.

We compare both with your numbers.

How cash-out works

Equity is the difference between what your home is worth and what you owe on it. If your home is worth $400,000 and you owe $250,000, you have $150,000 in equity. You can't borrow all of it, because each loan type requires you to leave some equity in the home. The new loan pays off your old mortgage, and you receive the rest at closing, minus closing costs. You end up with one mortgage and one monthly payment.

Cash-out on conventional, FHA and VA loans

Cash-out refinancing is available on conventional, FHA and VA loans, and each has different rules. Veterans can use a VA cash-out refinance even if their current loan isn't a VA loan. Conventional cash-out can also be used on second homes and rental properties. We match the loan type to your goal.

Costs and risks

Closing costs on a cash-out refinance are similar to a purchase: lender fees, an appraisal, title insurance and attorney fees. You can usually pay them from the cash you receive. The bigger cost to think about is the new rate on your whole balance. If your current rate is low, refinancing everything to get a smaller amount of cash can cost more over time than a HELOC. Your home also secures a larger loan, so you'll want a payment you're comfortable with.

How the process works

We estimate your home's value and equity, then order an appraisal to confirm it. You apply and send documents, the loan goes through underwriting, and you sign with a closing attorney. Because it's your primary home, federal law gives you three business days after signing before the loan funds and the cash is released. For other options, visit the refinance hub.