A cash-out refinance replaces your current mortgage with a larger one and pays you the difference in cash at closing. It is one of three common ways to use home equity; the others are a home equity line of credit (HELOC) and a fixed home equity loan.
Cash-out refinance vs. HELOC
- Cash-out refinance: one new first mortgage, usually at a fixed rate, with closing costs similar to any refinance. It replaces your existing rate, which matters if your current rate is low.
- HELOC: a second mortgage that stays behind your current loan. You draw what you need, usually at a variable rate tied to the prime rate, and keep your existing first mortgage untouched.
- Home equity loan: a second mortgage paid out as a lump sum at a fixed rate.
Common uses
- Home improvements.
- Paying off higher-interest debt.
- Large planned expenses such as tuition or a major repair.
What to weigh
- Your home is the collateral. Turning unsecured debt into mortgage debt puts the house behind it.
- Total interest. A new 30-year term restarts the clock. A lower payment can still mean more interest over the life of the loan; we show you both numbers.
- Closing costs apply, as with any refinance, and are listed on your Loan Estimate.
- Taxes. Whether mortgage interest is deductible depends on how the funds are used and on your situation. Ask your tax advisor; we do not give tax advice.
Try the refinance calculator to see a break-even, or compare with a HELOC or home equity loan.