Discover the pros and cons of refinancing your home so you can access cash from your home equity.

Homeowners have several ways to tap into their home equity to access cash. Two common ways are to open a home equity line of credit (HELOC) or take out a home equity loan. There’s a third way: a cash-out refi. Here’s a quick look at how it works.

How a cash-out refi works

A cash-out refi lets you refinance an existing home loan and get cash in hand.

Let’s say your house is worth $425,000 and your mortgage balance is $150,000; your equity is $275,000. Often, lenders limit borrowing against equity to 80%. So, $275,000 x 80% = $220,000. With a cash-out refi, you could borrow up to $370,000 based on $150,000 (the current mortgage balance) + $220,000 (80% of equity) you take out in cash.

Pros of a cash-out refi

A cash-out refi is a direct path to accessing cash that you can use for any reason. For example you could remodel, start a business, pay for college or consolidate debt.

If using the funds to consolidate debt, the interest rate may be lower than that charged for other types of credit such as credit cards or personal loans, allowing you to save money.

For some homeowners, loan interest on a cash-out refi may be tax deductible.

Cons of taking cash out of your house

Careful consideration of several factors is required before taking cash out from your home equity.

First, overall debt increases and it will take longer to pay off your home.

Second, your home is used as collateral; if you’re unable to repay the home loan you risk losing the home to foreclosure.

A third thing to consider are the closing costs for the new loan. If you don’t need a large amount of cash, a cash-out refi may not be the lowest cost way to borrow.

Get answers to your cash-out refi questions

If you have questions about a cash-out refinancing home loan, reach out to one of our mortgage loan officers online or call us at 800.991.2221. 

 

 All loans subject to approval. Rates, terms, and conditions are subject to change may vary based on credit worthiness, qualifications and collateral conditions.