Can I Do a Cash-Out Refinancing on a Paid-Off House?

Yes, you can cash-out refinance a paid-off house. Here’s how.

If your home is fully paid off, you’re in a strong position to qualify for a new mortgage. A cash-out refinance on a paid-off house means applying for a new loan secured by the equity you’ve built over time.

This is called cash-out refinancing on a mortgage-free property, and it’s a strategy many homeowners use to unlock large sums of cash without selling their property.

Because there’s no balance to pay off, the full amount of your new loan (minus closing costs) goes directly to you as cash.

Key Takeaways:

• You can get a cash-out refinance on a home that’s completely paid off.
• The loan is treated as a new first-lien mortgage backed by your home’s equity.
• The funds can be used for anything: home upgrades, tuition, retirement, etc.
• You’ll start making monthly mortgage payments again.

Why homeowners cash-out refinance paid-off houses

Many homeowners use this strategy to access equity without selling their property, taking out a home equity line of credit, or tapping into retirement accounts.

For a broader look at borrowing options when you own your home outright, see our guide: I Own My House Outright and Want a Loan: Is It Possible?

Common reasons for a cash-out refinance on a house that’s paid off include:

• Funding major home renovations
• Supplementing retirement income or emergency cash reserve
• Paying for college tuition
• Covering large medical-related expenses or emergencies
• Starting a small business or investing

For equity-rich homeowners, especially retirees or those who’ve owned their home for decades, it can offer financial flexibility without having to sell.

Pros and cons of a cash-out refinance on a paid-off house

Cash-Out Refinance Pros:

• Unlock large sums of money at relatively low interest rates
• Avoid selling your home or drain savings
• Interest on a mortgage may be tax-deductible

Cash-Out Refinance Cons:

• You’ll take on new debt, secure by your home
• Missed payments can lead to foreclosure
• You’ll pay closing costs, often 2%-6% of the loan amount

How to cash-out refinance a paid-off house

The process of cash-out refinancing a house that is paid off is similar to any standard mortgage loan.

Here are the steps involved:

1. Determine your home’s current value. A professional appraisal is usually required.
2. Shop mortgage lenders to compare interest rates, fees, and terms.
3. Submit your loan application. This includes credit checks, income verification, and asset documentation.
4. Underwriting and approval. The lender will evaluate your risk and ability to repay.
5. Close on the loan. Once finalized, you’ll receive the cash, and repaying your new mortgage begins.

Most cash-out refinance loans take 30 to 45 days from application to funding.

Is cash-out refinancing a paid-off house right for you?

Cash-out refinance on a paid-off house can be an excellent solution for homeowners who are equity-rich but cash-light. It offers flexibility to fund major life goals or handle unexpected expenses without liquidating other investments.

However, because your home becomes collateral again, it’s important to be comfortable with your new monthly payments. If you’re retired or living on a fixed income, you’ll want to carefully consider taking on new mortgage payments.

The bottom line

Cash-out refinancing on a paid-off house is entirely possible. It just means you’ll be taking on a new mortgage.

For the right homeowner, it can be a powerful financial tool. By converting home equity into cash, you can access funds that can improve your quality of life, increase your home’s value, and protect your financial future.

Just make sure to understand the risks, calculate the costs, and consider your long-term financial stability before moving forward.

Need guidance on where to start? Speak with a knowledgeable mortgage professional or financial advisor who can walk you through the numbers and help you compare loan options that best suit your needs.