Cash-out refinance
What is cash-out refinance?
A cash-out refinance replaces your mortgage with a larger one and pays you the difference in cash at closing. It increases both your balance and your loan-to-value ratio.
How it is calculated
New loan amount = current balance + cash taken + (closing costs, if financed)
What it means in practice
The new loan equals your current balance plus the cash you take, plus any financed closing costs. Everything is priced at the new rate.
Because the entire balance is re-priced, a cash-out refinance is usually the most expensive way to access equity when your existing mortgage rate is materially lower than today's rates. A second lien leaves the first mortgage alone.
Lenders commonly cap cash-out refinances around 80% loan-to-value, and often price them above a comparable rate-and-term refinance.