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A cash-out refinance lets you replace your current mortgage with a larger one. The difference goes to you as cash.
It can be a smart move. But it’s not right for everyone. Here’s how it works and when it makes sense in 2026.
How a Cash-Out Refinance Works
Say your home is worth $400,000. You owe $200,000 on your mortgage. You have $200,000 in equity.
With a cash-out refi, you take out a new mortgage for $280,000. You pay off the old $200,000 balance. The remaining $80,000 goes to you in cash.
You now have one mortgage at $280,000. Your monthly payment is based on the new loan amount and new rate.
Current Cash-Out Refinance Rates
Cash-out refinance rates are typically 0.25% to 0.75% higher than standard refinance rates.
| Loan Type | Avg. Rate (May 2026) |
|---|---|
| 30-year fixed (cash-out) | 7.10% – 7.75% |
| 15-year fixed (cash-out) | 6.60% – 7.20% |
| FHA cash-out (30-year) | 6.80% – 7.40% |
| VA cash-out (30-year) | 6.50% – 7.10% |
Rates as of May 2026. Your actual rate depends on credit score, LTV, and lender.
Cash-Out Refi vs HELOC: Which Costs Less?
A HELOC adds a second loan on top of your mortgage. A cash-out refi replaces your mortgage entirely.
- If your current mortgage rate is below 6%, a cash-out refi will cost you more in the long run. You’d be replacing a low-rate loan with a higher-rate one.
- If your rate is already above 7%, a cash-out refi can make sense — especially if you can lower your rate at the same time.
Compare this with your options. See our guide on HELOC vs Home Equity Loan for a full side-by-side.
Break-Even Analysis
A cash-out refi has closing costs — usually 2% to 5% of the loan. That means on a $280,000 loan, you might pay $5,600 to $14,000 upfront.
To find your break-even point: divide the closing costs by your monthly savings. If closing costs are $8,000 and you save $200/month, it takes 40 months to break even.
Only refinance if you plan to stay in the home long enough to pass that break-even point. Use our mortgage payment calculator to estimate your new monthly cost.
Pros and Cons of Cash-Out Refinancing
Pros
- One loan, one payment (simpler than a HELOC)
- Fixed rate — no surprises
- Can lower your rate if current rates are lower
- Access to large lump sums
Cons
- Closing costs are high
- Resets your loan term (you may pay more interest overall)
- If rates are higher now, your payment goes up
- You put your home at risk
Top Lenders for Cash-Out Refinance
- Rocket Mortgage: Fast online process, wide availability
- Better.com: No origination fee, competitive rates
- loanDepot: Good for borrowers with less equity
- Navy Federal: Best VA cash-out option for military members
- Chase Bank: Strong for existing customers
Qualification Requirements
- Credit score: 620 minimum (740+ for best rates)
- Equity: at least 20% remaining after the cash-out (80% max LTV)
- DTI: under 43% — check yours with the debt-to-income ratio calculator
- Home appraisal required
Also see: How to Get Pre-Approved for a Mortgage in 2026
When a Cash-Out Refi Makes Sense
- You can lower your rate AND get cash
- You need a large lump sum for home renovations
- You want to consolidate high-interest debt
- You have a lot of equity and plan to stay in the home
When to Skip It
- Your current rate is much lower than today’s rates
- You plan to sell in less than 3 years
- You need only a small amount — a HELOC or personal loan is cheaper
Frequently Asked Questions
How much cash can I get from a cash-out refinance?
Most lenders allow up to 80% LTV. On a $400,000 home, that means up to $320,000 total — minus your current mortgage balance.
Does a cash-out refi hurt your credit score?
It causes a small temporary dip from the hard inquiry and new account. This usually recovers within 6 to 12 months.
How long does a cash-out refi take?
Typically 30 to 45 days. Online lenders can sometimes close faster.
Can I do a cash-out refi if I have an FHA loan?
Yes. FHA allows cash-out up to 80% LTV. You’ll also need a new appraisal and to meet FHA credit requirements.
Is cash from a cash-out refinance taxable?
No. Cash from a refinance is loan proceeds, not income. It is not taxable. However, the interest may or may not be deductible depending on how you use the funds.