Cash-Out Refinance for Seniors: Pros, Cons & Requirements in 2025

Yes, seniors can do a cash-out refinance. Age itself isn’t a barrier—what matters is having enough equity, steady income, and a good credit profile. If approved, you can use the funds for medical costs, retirement needs, or home improvements.

In this article (Skip to...)

• Pros and cons of a cash-out refinance for seniors
• Cash-out refinance requirements for seniors
• Senior alternatives to a cash-out refinance
• The bottom line

Why do seniors consider a cash-out refinance?

For many seniors, a cash-out refinance can create more breathing room in retirement. Accessing home equity can provide the funds for unexpected medical expenses, which often rise with age. Others use the money to pay off high-interest debt so they can simplify their finances and reduce their monthly obligations. Some seniors choose this option to cover home renovations that make their space safer or more comfortable.

These funds could also provide a savings buffer that reduces some of the stress of living on a fixed income. For example, a senior couple with limited retirement savings may decide to do a cash-out refinance to free up $40,000. They use part of the funds to remodel their bathroom and the rest to build an emergency fund. While this increases their mortgage balance, it also provides them with more financial flexibility.

Pros and cons of a cash-out refinance program for seniors

A cash-out refinance could be a good option in some situations, but it’s not going to be the right choice for everyone. Let’s look at the biggest benefits and drawbacks to consider first.

Senior cash-out refinance pros:

• Access to a large amount of cash: A cash-out refinance could give you access to a large amount of money, often much more than you’d get with a credit card or personal loan. You can use these funds to pay down debt or fund major home improvements.
• Potential to improve loan terms: If mortgage rates are lower than they were when you first took out the loan, your cash-out refinance could come with a lower interest rate. However, the exact rates and terms you receive will depend on your credit score.
• Possible tax deduction: If the funds are used for home improvements, you may be able to take advantage of the mortgage interest tax deduction.

Senior cash-out refinance cons:

• Larger loan balance: A cash-out refinance increases your mortgage balance, which means your total debt load will increase. It could also extend your loan terms, which will add years to your repayment timeline.
• Closing costs: You’ll have to pay closing costs on a cash-out refinance, which typically cost between 2% and 6% of the total loan amount. So if you take out a $200,000 loan, you can expect to pay between $4,000 and $12,000.
• Your home is collateral: Since your home is used as collateral for the loan, you could lose your home if you’re unable to make your monthly mortgage payments.

Cash-out refinance requirements for seniors in 2025

There’s no age restriction for a cash-out refinance, but seniors will need to meet the following criteria:

• Home equity: Most lenders require you to keep at least 20% equity in your home after the refinance to ensure you don’t borrow more than your property is worth.
• Credit score: A credit score of 620 or higher is usually required for conventional loans. FHA loans may allow lower scores, making them an option for seniors with poor or limited credit histories.
• Income verification: Lenders will verify any income sources, like Social Security benefits, pensions, or retirement account withdrawals, to confirm you can afford the monthly payments. If most of your income comes from Social Security, you may want to explore home loans for seniors on Social Security to see what additional options exist.
• Debt-to-income (DTI) ratio: For DTI ratio, lenders want your total monthly debts to stay at 43% of your income or lower. However, some may accept a DTI ratio as high as 50%.
• Loan-to-value (LTV) ratio: The maximum LTV depends on the loan program. For example, conventional loans often cap cash-out refinances at 80% LTV, FHA allows up to 80%, and VA loans may permit up to 90%.
• Documentation: Seniors should be prepared to provide documents like recent bank statements, retirement account statements, proof of Social Security or pension income, and tax returns.

Alternatives to a cash-out refi program for seniors

• Reverse mortgage: A reverse mortgage allows you to access the equity in your home without selling, and the funds you receive are tax-free and won’t affect your Social Security or Medicare benefits. Though you won’t make payments on a reverse mortgage, interest continues to accrue each month, so your loan balance continues to grow. The loan is repaid once you sell the home, move out, or die.
• HELOC: A home equity line of credit (HELOC) is a revolving line of credit that’s secured by the equity in your home. During the draw period, you can borrow money and only pay on the amount you borrowed. At the end of the draw period, you’ll have to repay the full balance with interest.
• Home equity loan: A home equity loan allows you to access your home equity as a lump-sum cash payment, but unlike a cash-out refinance, it doesn’t change your original loan terms. Instead, you’ll take out a home equity loan as a second mortgage, which means you’ll have two monthly mortgage payments.
• Downsizing: Some seniors prefer to sell their current home and move to a more affordable property. Downsizing can reduce your housing expenses, free up cash from equity, and lower ongoing maintenance costs.
• Mortgage relief programs: Many states and nonprofits offer assistance to older homeowners who are struggling with mortgage payments. These programs may provide grants, low-interest loans, or payment deferrals to help seniors stay in their homes without taking on more debt.

The bottom line on a cash-out refi program for seniors

A cash-out refi program for seniors allows borrowers to tap into their home equity and cover things like debt or medical bills. It can be a valuable tool for many seniors, but like any loan, there are risks involved.

Before moving forward, it’s a good idea to compare a cash-out refinance with other options and seek advice from a financial advisor. Ultimately, the right strategy depends on your financial situation and retirement goals.