Taylor Scott
Cash-out refinancing is a type of mortgage refinancing that allows homeowners to borrow against their home's equity, providing access to a large sum of money that can be used for various purposes. While it is a popular option, not all banks offer cash-out refinancing, and it is important to compare different lenders to find the best terms and rates. Some banks and lenders that currently offer cash-out refinancing include U.S. Bank, Bank of America, Wells Fargo, and Rocket Mortgage.
| Characteristics | Values |
|---|---|
| Purpose | To access home equity |
| Lenders | Banks, credit unions, and retail mortgage lenders |
| Types | Fixed-rate mortgage or adjustable-rate mortgage |
| Alternatives | Home Equity Line of Credit (HELOC) or home equity loan |
| Requirements | Homeowner must retain at least 20% equity in their home, have a minimum credit score of 620, and meet other credit parameters |
| Uses | Debt consolidation, home improvements, college tuition, or a down payment on a second home |
| Benefits | May result in a lower interest rate and lower monthly payments |
| Drawbacks | Increases mortgage debt, reduces equity, and extends the term on shorter-term debt |
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What You'll Learn
Banks that offer cash-out refinancing
When it comes to cash-out refinancing, not all banks offer this service. However, some notable banks and mortgage lenders that do include:
U.S. Bank
U.S. Bank offers cash-out refinancing for conventional, FHA, or VA loans, which may provide better rates and lower monthly payments. They provide a free credit score checking tool for their clients and recommend a minimum of 20% equity in your home before refinancing. U.S. Bank also offers guidance on home improvement projects, providing personalised estimates based on the average cost of labour and materials in your area.
Rocket Mortgage, LLC
Rocket Mortgage, LLC is rated as one of the best lenders for overall cash-out refinancing by NerdWallet. They are evaluated based on loan volume, origination fees, rate transparency, and the ease of their online application.
Navy Federal
Navy Federal is another lender that provides cash-out refinancing, particularly catering to active military personnel and veterans. Similar to Rocket Mortgage, LLC, they are also rated highly by NerdWallet.
It is important to note that cash-out refinancing is not the only option to access your home's equity. Alternatives include a Home Equity Line of Credit (HELOC) or a home equity loan. These options provide flexibility and may have lower closing costs compared to cash-out refinancing.
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How cash-out refinancing works
Cash-out refinancing is a way to access cash by replacing your current mortgage with a new, larger loan. It allows you to convert your home equity into cash. This results in a new mortgage loan that may have different terms from your original loan, such as a different interest rate and loan term.
To determine how much you can withdraw, you need to calculate your current home value and find out what 80% of it is, as that is usually the maximum a lender will let you borrow. You can then subtract your current mortgage balance from that number to figure out how much you could potentially cash out. Most lenders require you to maintain at least 20% equity in your home, and you will need to meet qualifying criteria to be eligible for a cash-out refinance. For a conventional loan, you will generally need a credit score of at least 620.
Cash-out refinancing is beneficial if you can reduce the interest rate on your primary mortgage and make good use of the funds you take out. It can be a good idea if you need to access a large amount of money to build wealth, such as by adding value to your home or funding your education. However, it is important to consider that a cash-out refinance will increase your monthly payments and mortgage loan debt.
Cash-out refinancing is a type of debt, and taking on more debt could lower your credit score. However, if you're getting a cash-out refinance to pay off other debts, your credit profile could improve, especially if you were struggling to keep up with regular payments before.
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Cash-out refinancing vs. home equity loans
Cash-out refinancing and home equity loans are two of the most common methods to access your home equity. Both options let you borrow against your home's worth, but they have different features that may make one more suitable for your financial situation.
A cash-out refinance replaces your existing mortgage with a new, larger loan that pays out the difference between the old and new amounts at closing. The proceeds from the new loan pay off your old loan, and you keep the remainder. The new loan may have different terms, such as a different type of loan, interest rate, or payoff period. The funds from a cash-out refinance are tax-free and can be used for any purpose, such as debt consolidation, home improvements, college tuition, or a down payment on a second home. However, since the loan is secured by your house, you risk foreclosure if you can't pay it back. Additionally, cash-out refinancing incurs closing costs similar to your original mortgage, typically ranging from 2% to 5% of the loan amount.
A home equity loan, on the other hand, is a second mortgage taken out in addition to your existing first mortgage. It has its own terms and an interest rate separate from your first mortgage. You can typically borrow up to 80-85% of your home's equity, but the loan size depends on other financial factors, such as your income, credit history, and outstanding loans. Home equity loans usually have repayment periods of up to 30 years and may have higher interest rates compared to cash-out refinances. The overall process of taking out a home equity loan can be simpler and quicker than cash-out refinancing, and some lenders may waive most closing costs.
When deciding between cash-out refinancing and a home equity loan, it's important to consider your financial situation, goals, and how you plan to use the funds. Compare the costs, qualification criteria, and interest rates of both options to determine the best approach for your needs.
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Cash-out refinancing rates
A cash-out refinance is a type of mortgage refinance that allows you to turn your home equity into cash. It replaces your existing home mortgage with a new, larger loan and pays you the difference between the new and old mortgage amounts at closing. Cash-out refinancing rates are generally slightly below the 7% mark as of mid-2025. These rates are typically higher than regular refinance rates, specifically between one-quarter and one-half of a percentage point higher.
When considering a cash-out refinance, it is important to compare rates from multiple lenders to get the most competitive offer. Lenders may offer either fixed-rate or adjustable-rate mortgages for cash-out refinancing. With a fixed-rate mortgage, you can expect a stable interest rate throughout the loan term, while an adjustable-rate mortgage may offer a variable interest rate that can change periodically.
Various factors can influence the interest rate you receive for a cash-out refinance. These factors include your credit score, loan-to-value ratio, occupancy status, property type, and loan purpose. Additionally, some lenders may require you to maintain a minimum level of home equity, typically around 20%, to qualify for a cash-out refinance.
It is worth noting that cash-out refinancing rates tend to be higher than those of a home equity loan or home equity line of credit (HELOC). While a HELOC usually has variable rates, a home equity loan provides a lump sum of money to be repaid at a fixed rate. Therefore, it is essential to carefully evaluate your financial situation and consider seeking professional advice before proceeding with any refinancing option.
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Requirements for cash-out refinancing
Cash-out refinancing is a way to access cash by replacing your current mortgage with a new, larger loan. It is an alternative to a home equity loan. The cash-out refinancing process is similar to the process of buying a home. After meeting the qualifying requirements, you choose a lender, submit an application, and wait for approval.
Credit Score
A credit score of at least 580 is usually required for a mortgage loan. Many lenders require a higher credit score for cash-out refinancing, typically a minimum score of 620. However, there are exceptions, as some lenders will approve a refinance with a median FICO® Score of 580 or higher if there is at least 10% equity left in the home after the refinance.
Home Equity
Most lenders require you to maintain at least 20% equity in your home. This means that if your home is worth $400,000, you should have at least $80,000 in equity. The lender will not let you cash out 100% of your equity unless you qualify for a VA loan refinance.
Debt-to-Income Ratio (DTI)
A Debt-to-Income Ratio (DTI) of less than 50% is generally preferred by lenders. Your DTI is the amount of your monthly debts and payments divided by your total monthly income. For example, if your monthly debts are $1,500 and your monthly income is $4,000, your DTI is 37.5%. A DTI of over 43% may require you to have six months of reserves in the bank.
Seasoning
Conventional cash-out refinancing usually requires you to have owned the home for at least six months.
Appraisal
An appraisal is necessary to determine your home's current value. This will impact the amount you can borrow, as lenders will set a limit based on this value.
Closing Costs
Closing costs for cash-out refinancing are similar to those of your original mortgage, typically ranging from 2% to 6% of the loan amount. These costs may include credit report fees, appraisal fees, and attorney fees, depending on your state.
It is important to note that each lender sets its own requirements for cash-out refinancing, so it is advisable to shop around for the best interest rate and terms that fit your situation.
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Frequently asked questions
A cash-out refinance is a type of mortgage refinance that allows homeowners to borrow against their home's equity, resulting in a new mortgage with different terms and a larger loan amount. The difference between the old and new mortgage amounts is paid out to the borrower and can be used for various purposes, such as debt consolidation or funding home improvements.
No, not all banks offer cash-out refinancing. However, many banks and lenders do provide this option, including U.S. Bank, Bank of America, Wells Fargo, and various other mortgage lenders. It is recommended to shop around and compare different lenders' terms and rates to find the best option for your specific needs.
The requirements for a cash-out refinance can vary by lender, but there are some general guidelines. Most lenders require borrowers to retain at least 20% equity in their home after the refinance. Additionally, a minimum credit score of 620 is typically needed for a conventional cash-out refinance, although government loans like FHA loans may have more flexible requirements. Other factors considered include debt-to-income ratio and payment history.
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