💰 What Is a Cash-Out Refinance?

A cash-out refinance is a type of mortgage refinancing where you replace your existing home loan with a new, larger mortgage—and take the difference out in cash. Homeowners use this method to tap into their home equity for major expenses such as renovations, debt consolidation, education costs, or investment opportunities.

How a Cash-Out Refinance Works

With a cash-out refinance, your lender evaluates your home's current value and determines how much equity you can borrow against. You then take out a new mortgage that is larger than your existing loan balance. The new mortgage pays off the old one, and the remaining funds are provided to you as cash at closing.

Key components of a cash-out refinance include:

  • Home equity evaluation — lenders typically allow borrowing up to 75–80% of your home’s value.
  • New mortgage terms — the new loan may come with a different rate or term.
  • Cash disbursement — you receive the difference between your new loan amount and your old payoff.
  • Underwriting requirements — credit checks, appraisal, income verification, and debt review.
  • Closing process — similar to a standard refinance, including closing costs.

This option gives homeowners a way to convert home equity into usable cash while keeping a single mortgage payment.

Why Cash-Out Refinancing Matters

Common reasons homeowners choose cash-out refinancing:

  • Renovating or upgrading their home.
  • Paying off high-interest credit cards or personal loans.
  • Funding education or medical expenses.
  • Investing in other properties or financial opportunities.
  • Consolidating debt into one lower-interest payment.

Financial Advantages:

  • Access cash at typically lower interest rates compared to personal loans or credit cards.
  • Potential tax benefits if funds are used for home improvements (consult a tax professional).
  • Opportunity to restructure your existing mortgage terms.
  • Combine refinancing with cash access in one transaction.

Example of a Cash-Out Refinance

Imagine a homeowner whose property is valued at $500,000 with a remaining mortgage balance of $300,000. If the lender allows borrowing up to 80% of the home’s value, the maximum new loan amount would be $400,000.

  • The old loan of $300,000 is paid off.
  • The homeowner receives $100,000 in cash.
  • The homeowner now makes payments on the new $400,000 mortgage.

This process allows borrowers to unlock equity and use it toward meaningful financial goals.

Why Cash-Out Refinancing Matters for FSBO Sellers

FSBO sellers frequently encounter buyers who are using cash-out refinancing to access funds for down payments, renovations, or debt payoff before purchasing a home. Understanding this process helps sellers gauge buyer readiness and evaluate the strength of their financial position.

  • Buyers who recently completed a cash-out refinance may have accessible liquidity for stronger offers.
  • FSBO sellers can better understand financing timelines and closing expectations.
  • Knowledge of refinance strategies helps sellers confidently review buyer financing terms.
  • Trends in refinancing affect buyer affordability and market demand.

Sellers using Flat Fee MLS through Brokerless can improve visibility and attract financially prepared buyers.

Frequently Asked Questions

How much cash can I take out?
Most lenders allow borrowing up to 75–80% of your home’s appraised value, minus your current mortgage balance.

Are cash-out refinance funds taxable?
No. Cash received is considered loan proceeds, not income.

Does a cash-out refinance increase my monthly payment?
Often, yes—because you are taking on a larger loan amount.

Can I use the cash for anything?
Yes. Common uses include renovations, debt payoff, education, and investments.

How long does the process take?
Typically the same as a standard refinance: around 30–45 days.