Cash-Out Refinance
Refinancing for more than current mortgage balance to access home equity as cash.
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Key Takeaways
- First, understand the key concepts and how things work
- Confirm the latest regulations and requirements from official sources
- Seek advice from professionals who specialize in your situation
Overview
A cash-out refinance is a type of mortgage refinancing where the borrower takes out a new loan for more than the current mortgage balance. The difference is paid to the borrower in cash. This allows homeowners to access their home equity for various purposes such as home renovations, debt consolidation, or other expenses.
Key Characteristics
- New loan amount exceeds current mortgage balance
- Equity converted to cash at closing
- Typically requires 20%+ equity in the home
- Interest rates may be higher than rate-and-term refinance
- Cash-out portion may affect PMI requirements
Common Uses
- Home renovations and improvements
- Debt consolidation (credit cards, student loans)
- Education expenses
- Emergency funds
- Investment opportunities
US vs Canada Considerations
In the US, cash-out refinances typically have a maximum LTV of 80%. In Canada, home equity lines of credit (HELOCs) are more common for accessing equity, though cash-out refinances are also available with similar LTV restrictions.
Related Glossary Terms
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AllMoneyCalc - Mortgage CalculatorFrequently Asked Questions
Below we cover the core concepts and how they work in practice in real estate and finance.
No two scenarios are the same, so use this as a starting point. For personalized advice, consult a qualified professional.
Turn to official sources such as the IRS, CRA, HUD, and CFPB for the most accurate and up-to-date information.
This content is for informational and educational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified professional for advice specific to your situation.