Cash-Out Refinance: How It Works
Replace your mortgage with a larger one and take the difference in cash.
- How you get paid
- Cash at closing, from the difference between the new and old loan
- Rate
- Set on the new loan; fixed or adjustable depending on the lender
- Payments
- One monthly mortgage payment on the new, larger loan
- Secured by
- Your home
- Best for
- Homeowners who can also get a good rate on the new mortgage
With a cash-out refinance, you take out a new mortgage for more than you currently owe, pay off your old mortgage with it, and keep the difference as cash. You end up with a single, larger mortgage.
How it works
Say your home is worth $400,000 and you owe $200,000. A lender might approve a new loan of $280,000 (it depends on their limits). The first $200,000 pays off your old mortgage, and you receive the remaining amount, less closing costs.
Lenders typically cap the new loan at a percentage of your home’s value, so how much cash you can take out depends on your equity and the lender’s limits.
Who it tends to suit
- Homeowners whose current mortgage rate is higher than what’s available today, so a new loan could lower it.
- People who want one simple monthly payment instead of a mortgage plus a second loan.
- Borrowers planning to stay in the home long enough to recover the closing costs.
Things to weigh
- Your rate resets. If your current rate is low, a new loan could cost more every month.
- Closing costs apply, much like they did on your original mortgage.
- You’re borrowing more against your home, and it remains the collateral.
- You may restart the clock on a long loan term, which can increase total interest paid.
Compare before you choose
Lenders differ on credit requirements, loan sizes and rates. See your matched options with our quick quiz, or use the comparison directory.
See My Options
Frequently asked questions
How is a cash-out refinance different from a home equity loan?
A cash-out refinance replaces your existing mortgage with one new loan. A home equity loan is added on top of your existing mortgage, so you'd have two loans.
Does my interest rate change?
Yes. The new loan has its own rate, which may be higher or lower than your current one. Compare it to your existing rate before you decide.
What does it cost?
Refinancing usually comes with closing costs, which can be a meaningful share of the loan amount. Ask each lender for an itemized estimate.
Published November 9, 2026. This article is for general information and isn't financial, legal or tax advice. Terms vary by lender and state. We may be compensated by companies featured on this site. See our advertiser disclosure.