Cash-Out Refinance Guide: Requirements and Rates for 2025

What is a cash-out refinance?

A cash-out refinance replaces your existing home loan with a new, larger mortgage. When you close your loan, you receive cash back equal to the difference between your new loan amount and your old one. Cash-out refinancing lets you tap the equity in your home and use it for any purpose you like. And it’s a great way to access a large sum of money at lower interest rates.

In this article (Skip to...)

• How it works
• Requirements
• Maximum cash-back
• Cash-out refi rates
• Types of cash-out loans
• Process
• Alternative options
• FAQ

How a cash-out refinance works

A cash-out refinance lets you tap into your home equity by replacing your existing mortgage with a new loan that’s larger than what you owe. You use the new mortgage to pay off your first mortgage, and you get the difference in a lump sum of cash.

Here are a few things to keep in mind about how cash-out refinancing works:

• Cash-out refinance rates tend to be higher than those for a standard mortgage refinance.
• Your interest rate is determined by your credit score, loan amount, and overall financial situation.
• Most lenders allow you to borrow up to 80% of your home’s value, based on your loan-to-value (LTV) ratio.
• A bigger loan balance means you’ll pay more in interest over the life of the new loan.
• Even so, mortgage rates are typically lower than those on credit cards or personal loans, making this a smart move for major expenses.
• You can use the funds however you want, but many homeowners put them toward home improvements or debt consolidation for a higher return.

See a few more good examples of how to use a cash-out refinance here.

Cash-out refinance requirements

To get a cash-out refinance loan, you’ll need to qualify based on your credit score, income, and property value, just like when applying for a new mortgage. Requirements for a cash-out refinance depend on your mortgage lender and the type of loan you choose. But here’s what most borrowers should expect:

• More than 20% equity in your home
• A home appraisal to confirm the current value of your home
• A credit score of 620 or higher
• A debt-to-income ratio (DTI) no greater than 43%, including your monthly mortgage payment on the new loan
• A loan-to-value (LTV) ratio of 80% or less
• Proof of your income and employment

These cash-out refinance rules apply to most conventional cash-out refinance loans. If you’re considering an FHA cash-out refinance or a VA cash-out refinance, the qualifications work a bit differently. We’ll break those down below.

How much money can I get with a cash-out refi?

With a conventional cash-out refinance, you can borrow up to 80% of your home’s value through a new mortgage. The difference between that and your current mortgage balance is what you can take out as a lump sum of cash.

This 80% figure is your loan-to-value ratio, or LTV. To figure out how much cash you can get from your home, subtract your existing mortgage balance from the total loan amount allowed under your LTV limit.

Here’s how a cash-out refinance might look:

• Home’s value: $400,000
• Maximum loan amount (80% LTV): $320,000
• Current mortgage: $250,000
• Maximum cash-out: $70,000

In this example, the homeowner has $150,000 in home equity. But since lenders require at least 20% equity to stay in the home, the most this borrower could withdraw is $70,000.If there’s already a second mortgage—like a home equity line of credit (HELOC) or a home equity loan—that balance gets subtracted too.

Cash-out refinance rates

Cash-out refinance rates typically run 0.125% to 0.5% higher than rates for a standard mortgage refinance without cash back. Your final interest rate depends on several factors tied to your financial profile and how much home equity you’re withdrawing.

“The rate you pay will be based on your loan-to-value (LTV) ratio, credit score, and in some cases your loan amount,” says Carol Lynn Upshaw, senior mortgage originator at Hyperion Mortgage. In other words, better numbers mean better offers.

Cash-out refinance rates can be anywhere from 0.125% to 0.5% higher than rates for a no-cash-out refinance.

Upshaw adds, “The best interest rates are given to those with higher credit scores—typically over 740—and lower LTV ratios.”

The amount of equity you choose to withdraw also impacts your rate. The more you borrow, the more risk the lender assumes. And higher risk means a higher rate.

“If you borrow 70% of your home’s value, you may pay a rate 0.125% higher,” says Ryan Leahy, inside sales manager for Mortgage Network. “If you borrow 80%, you may end up paying a quarter percent higher rate.”In short, to get the lowest cash-out refinance rates, aim for a good credit score, borrow conservatively, and keep your LTV on the lower end

Types of cash-out refinance loans

Homeowners can choose from three common cash-out refinance loan types. Each loan option has different eligibility requirements and borrowing limits.

1. Conventional cash-out refinance

Conventional loans allow you to borrow up to 80% of your home’s value, provided you meet the minimum credit score requirement of 620. Typically, conventional loans offer lower interest rates compared to government-backed options. To qualify, you’ll need a strong credit profile and a low debt-to-income (DTI) ratio.

2. FHA cash-out refinance

This loan option also allows you to borrow up to 80% of your equity. To qualify, you need a credit score of 600 or higher. Additionally, you must pay both an upfront mortgage insurance premium and an annual mortgage insurance premium (MIP). Most borrowers choose this option if they already have an FHA loan or do not qualify for a conventional refinance.

3. VA cash-out refinance

This type of VA loan allows qualified veterans, active-duty service members, National Guard and Reserve members, and certain surviving spouses to borrow up to 100% of the home’s value; however, some lenders limit the loan-to-value ratio to 90%. This option includes a VA funding fee that is added to the loan amount, unless you qualify for an exemption due to a service-connected disability.

The cash-out refinance closing process

The cash-out refinance process is similar to a traditional mortgage refinance:

1. Check rates from a few lenders to see which can offer you the best cash-out refinance rate and fees
2. Choose a lender and complete a refinance application
3. Provide supporting documents, such as pay stubs and W-2 forms
4. Get a home appraisal
5. The loan underwriter will review all your documents and approve you for a cash-out refinance
6. Sign your closing documents and receive the cash-out at closing

“If your property is determined to be of sufficient value to secure the loan, and if the payoff for the prior mortgage is lower than the amount of your new loan, your refi loan will be granted and a mortgage closing will be scheduled,” says real estate attorney Rajeh Saadeh.

Just remember not to skip the first step of the cash-out refinancing closing process. Since cash-out refinance rates are a little higher than standard mortgage rates, and you’re taking out a larger loan than before, it’s extra important to shop around and find your best refinance offer.

Cash-out refinance alternatives

A cash-out refinance isn’t your only option for turning home equity into cash. Other choices include home equity loans, HELOCs, personal loans, and reverse mortgages. Each has its pros and cons depending on your financial goals and current mortgage status.

Cash-out refinance vs. home equity loan

A home equity loan gives you a lump sum of cash, secured by your home, without replacing your original mortgage. It’s a second mortgage with fixed monthly payments. This can be a good choice if you already have a low interest rate on your current loan or are nearing the end of your loan repayment.

Cash-out refinance vs HELOC

A home equity line of credit (HELOC) functions like a credit card: it’s a revolving line of credit based on your home’s value. Unlike a cash-out refi, it doesn’t replace your current loan and typically incurs lower closing costs. A HELOC provides you with the flexibility to withdraw funds as necessary.

Cash-out refi vs personal loan

A personal loan is an unsecured type of loan that is typically used for large purchases or debt consolidation. Interest rates vary widely and tend to be higher than those on mortgage loans or HELOCs. Monthly payments are required until you repay the loan balance.

Cash-out refi vs. reverse mortgage

A reverse mortgage loan is available to homeowners aged 62 or older who have substantial home equity. It provides cash with no required monthly repayment. The loan balance is due when you sell the home or the borrower passes away. Talk to a HUD-approved counselor to understand if this option fits your situation.

Is a cash-out refinance a good idea?

A cash-out refinance makes sense if you can qualify for a lower interest rate than your original loan. It’s also useful for switching from an adjustable-rate mortgage to a fixed-rate mortgage, or for shortening your loan term to reduce total interest payments.

It provides you with access to cash at closing, which you can use for any purpose.

• Debt consolidation
• Paying off a home equity line of credit (HELOC)
• Renovations
• Paying income taxes
• Education expenses
• A down payment on an investment property

“A cash-out refinance loan can be a great idea if you qualify for and can get a lower interest rate on the new loan versus the old loan,” says Carol Lynn Upshaw, senior mortgage originator with Hyperion Mortgage.

Just keep in mind that you’re starting a new long-term loan—often lasting 15 to 30 years—and you’ll be paying interest over the life of the loan. Experts suggest using your equity for long-term investments or essential needs, such as second home buying, reducing debt, or covering medical expenses.

Using it for short-term wants, like vacations or cars, usually isn’t recommended.

Cash-out refinance FAQ

What are today’s cash-out refinance rates?

Cash-out refinance rates are still historically low. And, even when mortgage rates rise, cash-out refinancing is often still cheaper than other forms of borrowing, like credit cards and personal loans.

Check with a few lenders to find your best cash-out refinance rate in today’s market.