Cash-out refinance: Rates and guide for homeowners

A cash-out refinance involves taking a bigger balance than your existing loan while taking the difference in cash to use for debt consolidation, home improvements, or whatever goal you might have in using your home equity.¹

Will go over the ins and outs of cash-out refinances, how they work, what you should know, and the alternatives.

Key takeaways:

• A cash-out refinance is when you take out a bigger loan on a primary mortgage, receiving the difference in cash.
• You can generally only borrow up to 80% of your home value.
• Home equity loans are an alternative. A Home Loan Expert can do a blended rate calculation to help you determine the best option.

What is a cash-out refinance?

Home equity is the difference between your property value and your remaining mortgage balance. This is what you’re borrowing from when you do a cash-out refinance.

A cash-out refinance is a type of mortgage refinance that takes advantage of the equity you’ve built over time and gives you cash in exchange for taking on a larger mortgage. In other words, with a cash-out refinance, you borrow more than you owe on your mortgage and pocket the difference.

Unlike when you take out a second mortgage, a cash-out refinance doesn’t add another monthly payment to your list of bills – you pay off your old mortgage and replace it with the new mortgage.

Cash-out refinance example

Let’s say that you’ve bought a home for $400,000 and you’ve paid off $120,000. This means you still owe $280,000 on your home. Let’s also say that you want to make $30,000 in renovations.²

With a cash-out refinance, you take a portion of your equity and then add what you’ve taken out onto your new mortgage principal. This means your new mortgage would be worth $310,000 – the original 280,000 you owed on the home plus the $30,000 you need for renovations. Your mortgage lender will give you the $30,000 in cash a few days after closing.

Lenders determine the amount of equity you can take out of your home based on your loan-to-value ratio (LTV). This is a comparison of your mortgage balance to the value of your home.

How much cash can you get on a refinance?

You’re generally limited to borrowing no more than 80% of your property value (80% LTV). For most borrowers, this requires a mental shift. Said another way, you must maintain at least 20% equity in your home after the refinance. The exception to this is VA loans, allowing you to access all your equity if you qualify.³ Lenders may also have their own requirements.

There are other factors that may determine your eligibility:

• Credit score: If you have a higher credit score, sometimes you can qualify with a higher LTV, meaning you can convert more of your equity into cash.
• Property type: Depending on how you occupy your residence, some are considered safer than others. For example, you’re more likely to make the payment on a primary residence than a vacation home if you get into financial trouble.
• Debt-to-income ratio (DTI): This is a comparison of the minimum monthly payments on all your debts to pretax monthly income. The lower this is, the better chance you have of qualifying.

How does a cash-out refinance work?

Let’s look at the process for getting a cash-out refinance. It’s like the process you go through when you buy a home. If the steps you need to follow are unclear, you can always ask your lender questions you may have.

1. Check the requirements

Lenders may have their own refinancing requirements, but we’ll talk about the ones for Rocket Mortgage.

• Credit score: You’ll need a credit score of at least 580 to take cash out when applying for non-jumbo loans. You may have additional financial flexibility in how the funds are used if you have a score of 620 or better. Homeowners with lower credit scores may be able to use an FHA cash-out refinance to meet their goals.
• DTI: To qualify for the most possible loan options, you want to keep your DTI no higher than 43%.
• LTV: Because lenders generally limit you to borrowing no more than 80% of your property value, it’s imperative to make sure you have enough existing equity to accomplish your goals. One exception to the 80% guideline is a VA cash-out refinance, which can allow you to take out 100% of your existing equity, depending on lender requirements.

2. Determine how much cash you need

Once you know that you meet the requirements for a cash-out refinance, determine how much money you need. If you’re planning to use the funds for repairs or renovations, it’s a good idea to get a few estimates from contractors in your area so you know how much you’ll need.

If you want to refinance to consolidate debt, sit down with your credit card and bank statements and determine exactly how much cash you need to cover your debts.

3. Apply through your lender

You can always check current refinance rates from Rocket Mortgage, but to get a personalized rate for your situation, you’ll need to apply. The good news is if you do all your applications with lenders within a 14-day period, it all counts as one credit check. You can shop around. Here’s a short checklist of what you need to apply:

• 2 months of asset statements for any accounts you want to use to qualify
• 2 years of W-2s/1099s
• 2 years of tax returns
• Last two pay stubs

Reasons to consider a cash-out refinance

A cash-out refinance can provide several financial benefits and may present advantages over taking out a personal loan or second mortgage. Here are some reasons to consider getting a cash-out refinance.

Fund home improvements and renovations

A cash-out refinance allows you to use the equity you’ve already earned to finance a house renovation that can increase your home’s value.

 You’ll be able to get a lower interest rate on your refinanced mortgage than you would with a credit card, which could save you a lot of money on interest payments.

Some things people are looking for in terms of resale value for homes are more modern kitchens and updated lighting. Open layouts are also popular. If you think about it, this all makes sense because it adds to the functionality of the space.

Use for debt consolidation

A cash-out refinance can be used to pay off debt and transfer what you owe to one convenient, lower-interest payment. You can use the funds to pay off as many high-interest debts as you have the money to cover.

By doing this, you’ll reduce the amount you’ll pay in interest each month and may potentially free up money to help you pay down debts that aren’t part of your consolidation or to pay off your mortgage more quickly.

To give you an idea of the possible savings you could see from using your home equity to consolidate debt, the average credit card interest rate as of June 8, 2026, was 25.18% according to Forbes. Compare that to the 30-year fixed-rate in the Freddie Mac Primary Mortgage Market Survey®, which was 6.48% the week of June 4, 2026.

Get a lower interest rate

Even a small change in interest rate can make a big difference when you’re talking about hundreds of thousands of dollars. Let’s say that you have an original loan amount of 7% on a $350,000 loan. A couple of years later, you choose to refinance the remaining balance of $275,000 at 6.75% with a 28-year loan.

Let’s look at the math on that, with and without refinancing.

If you’re unsure if a cash-out refinance could save you money, you can use Rocket Mortgage’s refinance calculator to see if refinancing meets your goals.

Free up money to invest

When you consider the power of compounding interest, it can be a smart move to free up money and save toward retirement early rather than keep your funds tied to your home. Cash-out refinances give you access to funds that you can use to boost your retirement savings or build up a college fund.

Of course, you want to balance this against the fact that you could pay more and longer for your mortgage. So, you’ll want to work with a financial adviser to map out the right option for you.

What you should know about getting a cash-out refinance

You might want to consider a few things before committing to a cash-out refinance. Here are some important things all homeowners should keep in mind before refinancing.

You’ll probably have to leave equity in your home

Conventional loans and FHA loans require you to leave 20% equity in your home after a refinance. If you’re refinancing a VA loan, your lender may allow you to borrow your full equity without penalty.

You’ll pay closing costs

Closing costs cover the fees to set up your loan and process all the paperwork. You’ll pay these costs when buying a home, refinancing or closing on a home equity loan. Some of the most common closing costs include origination fees, credit checks, and appraisal fees. The average closing costs are 3% – 6% of the loan amount.

When deciding whether a refinance is right for you, one thing to check on is whether the closing costs make this option prohibitive compared to other loan options. This can be the case at small enough loan amounts.

You won’t get cash immediately

The Truth in Lending Act requires your lender to offer you 3 days to cancel the loan if you have a change of heart after you close on a refinance of your primary residence. You will go through the mortgage underwriting process, just like you did when you bought your home. You won’t get your cash until a few days after closing. If you need money immediately, the refinance timeline can complicate things.

Although they come with higher rates, a personal loan is a potential option if you’re on a tight timeline. Our friends at Rocket Loans offer unsecured loans up to $75,000, with funding as soon as the same day, if you qualify.

Your loan terms will change

When you get a cash-out refinance, you pay off your original mortgage and replace it with a new loan. This means your new loan may take longer to pay off, your monthly payments may be different, or your interest rate may change. Be sure to look at the Closing Disclosure from your lender and analyze your new loan terms before you close.

You’ll need an appraisal

Cash-out refinances are contingent upon an appraisal by an independent third party. Appraisals can take time, so factor this into your refinancing timeline. The appraisal will determine how much your lender is willing to give you. You’ll want to do maintenance ahead of time, if possible, to put your best foot forward.

Cash-out refinance vs. home equity loan vs. home equity line of credit

Home equity loans and home equity lines of credit (HELOCs) are alternatives to cash-out refinances if it doesn’t make sense to give up your existing mortgage based on a blended rate calculation by a Home Loan Expert.⁴ The table below will help you weigh the pros and cons of a cash-out refinance vs. a home equity loan vs. a HELOC. If you decide to go with a cash-out refinance, you may want to consider the tax implications. Rocket Mortgage doesn’t offer HELOCs at this time.

FAQ

Consider these frequently asked questions before you opt for a cash-out refinance.

When is a cash-out refinance a good option?

A cash-out refinance is a good option when it provides a lower rate compared to the weighted combined rate you would receive by not touching your existing mortgage and taking a Home Equity Loan or HELOC. You’ll generally need to leave at least 20% equity in your home. You’ll also need to meet a lender’s credit qualifications.

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

Generally, the amount you can borrow with a cash-out refinance is capped at 80% of your home value. But this can vary depending on the lender and loan type you choose. For example, you can borrow 100% of your home’s equity through a VA cash-out refinance. Lenders may also limit what you can borrow based on your credit score.

Do I have to pay taxes on a cash-out refinance?

You don’t pay income taxes on loans. There are tax implications to a cash-out refinance. You can deduct mortgage interest on loans for primary or vacation homes up to $750,000 if the funds are used to buy, build, or improve a home. You may wonder if refinancing fees are tax deductible. This isn’t meant to be personalized tax advice. Speak with a financial planner or tax preparer.

Will applying for a home equity line of credit let me borrow more than 80% of my home’s equity?

If you’re well-qualified, you may be able to borrow more than 80% of your home value with a home equity line of credit. While Rocket Mortgage doesn’t offer HELOCs, we do offer home equity loans. If you have a credit score of 740 or better, you can borrow up to 90% of your equity.

Does my credit score matter when applying for a refinance?

Yes. Most lenders require you to have a credit score of at least 580 to do a debt consolidation. At a 620 cash-out refinance credit score, you may find that you have more options to use the funds as you please. If your score is low, you may want to focus on improving it before you apply or explore ways to refinance with bad credit.

How will my monthly mortgage payment change after refinancing?

For most homeowners, your monthly mortgage payment will increase with a cash-out refinance because you’re borrowing more than you currently owe on your mortgage. If interest rates are lower than they were when you applied for your current mortgage, your payment may stay the same or go down. In addition to the rate, it depends on the term and the amount of cash taken out.

The bottom line: A cash-out refinance may be a good option for you

Whether you’re looking for cash to consolidate debt or do home improvements, a cash-out refinance may be the way to go. Whether this or an alternative like a Home Equity Loan makes sense is based on a blended rate calculation.

You’ll also want to make sure you have enough equity and a qualifying credit score to accomplish your goals. If you’re ready to get started, you can apply online with Rocket Mortgage.

¹Refinancing may increase finance charges over the life of the loan.

²Any figures, interest rates, loan examples, and market data referenced in this article are hypothetical or aggregated for educational purposes only. They are not intended to reflect current pricing, available terms, or personalized loan options for any consumer. This content does not constitute an advertisement of credit terms, a solicitation or offer to extend credit, or a rate quote under federal or state lending laws. Actual mortgage rates and terms are determined by individual financial qualifications, property characteristics, market conditions, and other factors, and are subject to change without notice.

If you are seeking current, real-time mortgage rate information please refer to the official live rate information and product details published at RocketMortgage.com/mortgage-rates, where current pricing and various loan terms are made available.

³Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

⁴Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 11/19/25 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Ameriprise products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher‑priced loans in the State of New York are subject to additional regulatory requirements. Additional restrictions apply. This is not a commitment to lend.

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