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What Is

Cash Out Refinancing?

As the name suggests, a Cash Out Refinance Loan (or “Cash Out Refi” for short) does two things: it allows you to refinance your existing mortgage, and it leaves you with extra cash “taken out” of your home’s equity. In other words, you refinance for more than you owe.

“Equity” is essentially the difference between your home’s current value and the amount you still owe on it (not counting interest or other charges). It’s the amount of your home you actually “own” at the moment, as opposed to the amount still “belonging” to the lender, expressed in terms of its total cash value. So, if your home is currently worth $200,000 and you own $150,000 on your mortgage, you have $50,000 in house equity. An equity refinance (yet another term you’ll hear used for a cash out mortgage) would allow you to (a) “reboot” the amount you still own on your home as if it were a brand new loan, and (b) take out 80% or 90% of your equity in cash to use for other things. The amount you borrow against your home’s equity is added to the new home loan amount and repaid on the same terms as part of the same total amount. The property being leveraged is still collateral for the loan, which helps to hold interest rates down but also means your house is at risk if for some reason you’re unable to make your payments at some point down the road.

This is not to be confused with traditional refinancing, in which the balance due on your mortgage is “rebooted” as if it were a new loan all by itself. Because no extra cash is pulled out with a traditional refinance, the resulting monthly payments are typically lower. (If they weren’t, it wouldn’t normally make sense to refinance in the first place.) A cash out refinance, however, can result in comparable or even higher monthly payments, depending on how much you still owe, how much cash is taken out, the costs of refinancing, and how current interest rates compare with rates when you took out the initial mortgage.

Cash out mortgage refinancing is also different from taking out a home equity line of credit (HELOC) or a home equity loan. While all three of these are options intended to allow you to take advantage of the equity you have in your home, the structures are different in important ways. Your cash out mortgage refinancing REPLACES your current house payment, and on different terms. A home equity loan uses your home equity as security on a completely new loan otherwise unrelated to your existing mortgage – it’s a NEW PAYMENT to make each month. A home equity line of credit is similar to a home equity loan, relying on your house equity to guarantee the funds borrowed. Instead of receiving a lump sum up front, however you are given a credit limit on which you can draw, similar to a credit card. The terms of repayment are different than a home equity loan (or any other typical loan), but like a home equity loan it’s an entirely new debt for which you’re responsible.

Most cash out refinance lenders require credit scores of ‘Fair’ or better (620+ is a common rule of thumb.) They’ll pay particularly close attention to your current debt-to-income ratio (DTI), which is exactly what it sounds like – your total debt (not just on your home) compared to your total income (from any documented source). A DTI of 50% or less is ideal. Finally, before you even shop mortgage lenders you should make sure you have enough house equity for a cash out refi to even be possible. You must have at least 20% equity in your home to be eligible to even be considered for equity refinance programs.

That said, don’t automatically assume you don’t qualify just because you don’t meet one or more of these guidelines. The proliferation of online lenders and creative financial structures made possible by the lower overhead and universal reach of the internet means there are options which were unthinkable for your parents’ generation. There are even lenders who specialize in bad credit mortgage loans and other credit-building or credit-rebuilding situations. If you think your best way forward is cash out refinance bad credit doesn’t necessarily have to stop you. It may not be easy, but that doesn’t mean it’s impossible. And you don’t have to figure it all out alone. As it turns out, connecting borrowers to appropriate lenders is a big part of what we do.

Uses of a Cash Out Refinance Loan

You can use the funds from your cash out mortgage refinancing for just about anything you like. That doesn’t mean, however, that all of your options are equally good choices. You’re extending your debt with your home on the line as collateral. Cash out refi is a powerful tool, and you shouldn’t be afraid to use it when it’s appropriate, but neither is it a move to be taken too lightly or for frivolous reasons.

Perhaps the best use of your cash out equity refinance is to improve or update the home itself. Home renovation can be a major expense, but when done strategically can help maintain or raise the value of your home over the long term while still meeting whatever short term need led to the decision in the first place. Borrowing against your home’s equity to increase its value is often a solid financial move, as well as improving your quality of life while in it right now.

Debt consolidation is another common use of home equity. This can have the advantage of eliminating multiple monthly bills and their accompanying late fees and replacing them with a single monthly payment (which you were already making) – hopefully at a better overall interest rate. It’s always good to eliminate debt, which in turn strengthens your credit, but there are other ways to accomplish this. A cash out house equity loan isn’t necessarily a bad idea; just make sure you’ve explored all of your other options first.

Other borrowers have used cash out refinancing – even when it includes bad credit mortgage loans – to pay off medical bills, fund their education or the education of someone else in their household, pay for weddings, or even take vacations. You can do these things if you choose; it’s your money, after all. Be aware, however, that in MOST circumstances, there are better ways to make any of those things happen. Cash out refi may work, but something else might work better. That said, if other options aren’t available, or the terms aren’t favorable enough, and you know your goals are important, it won’t hurt to run the numbers and see what happens if you refinance for more than you owe. Just because it’s not the perfect solution for everyone in all situations doesn’t mean it’s not the perfect solution for you, in yours, right now.

Cautions and Considerations

A cash out mortgage refinance is called a “house equity refinance” for a reason. It’s only possible because of the equity you have in your home, and that same home acts as collateral on the loan just like in your initial mortgage. That means that if at some point you are unable to make your payments for any reason, the lender could take ownership of your home and sell it to recoup their losses. They don’t want to do this, by and large – it’s not an efficient way to make a reasonable profit and doesn’t lead to happy customers – but they will, if necessary.

You should also make sure of the terms of any new mortgage before giving up the old. If your original loan was taken out at a higher interest rate, it may make sense to refinance and the difference you’ll save might even offset the cost of the process. On the other hand, if interest rates are roughly the same or have gone up, refinancing will cost you more on the entire remaining balances, as well as those same terms applying to the cash out amount you borrow. This might be very much worth it, depending on your goals, but avoid unpleasant surprises by paying attention to the details NOW.

Many lenders will require you to carry private mortgage insurance (PMI) when refinancing with cash out. This is an additional expense for which you are responsible and which covers the lender in case the value of the property falls below the remaining balance on the loan at some point and the borrower defaults – leaving the lender with property worth less than what they’re still owed. PMI can usually be rolled into your monthly payments, but that doesn’t mean it’s not a meaningful expense.

Loanry® is here to help you get your Cash-Out Refinance Loans


Why Loanry?

At Loanry, and across the Goalry family, we’re not here to tell you what to do with your money. Our vision is to make it easier for you to get the information, tools, and connections you need to decide for yourself. We believe in simplifying and unifying personal finance to make it easier for you to take more effective control of your money – and, in so doing, of your life.

Part of that simplification is ready access to every article, explanation, option, online tool, or application in one unified content mall – a lending marketplace wrapped in a library and self-service hub. We’re accessible any time of day or night, weekends and holidays, rain or snow or heatwave, from any connected device. Educate yourself on mortgage refinancing options or ask to be connected to a lender – at your pace, when you’re ready. No taking off work, no dressing up, no signing in for a chance to go sit in a little office, and no worrying that you left essential paperwork at home.


Cash out refinancing means it will take longer to pay off your home. It also means you’ll have access to substantial resources for whatever project or purchase is important to you right now.

Your recent credit history and current credit score are major factors in the terms available to you on a home equity cash out refinance loan or any other type of loan. What you do with that loan and how you repay it over upcoming months and years will in turn reshape that credit history and your three-digit credit score – for better or worse. Eventually, you’ll need financing again. You’ll want to buy a new car, or finance another home, or pay for a wedding, or send your kids to college. What you do between now and then will determine how many options you’ll have when that day comes, and what sorts of terms are available to you when you get there.

Fixing or strengthening your credit takes time, but it may not take as long as you think. And it starts today. Let us know if we can help.


Loanry and the rest of the family are about more than connecting you to lenders or hunting down better interest rates. We’re determined to provide users like you with the information and resources you need to take more effective control of your personal and small business finances across the board. We believe that with a little time and the right information, most of us are quite capable of making good decisions and taking meaningful steps towards improving our current circumstances while securing a better future for ourselves and those in our care.

We’ve designed what we like to think of as a “content mall” of related sites covering just about every aspect of personal and small business money management. You can learn about different sorts of savings accounts and investment options on or check your credit scores on Read up on an effective household budget on or watch a brief video outlining the different types of small business loans on before exploring how to best prepare for tax season with Use our online tools to compare loan options or estimate interest.

Whatever you need to know, there’s a good chance it’s covered in plain, simple English and freely accessible from wherever you like, whenever you like, in one of our thousands of informational blog entries or our hundreds of videos. We’ll never tell you what to do, but we’d like to help you make more informed decisions along the way.


Did You Hear?

“Property is the fruit of labor; property is desirable; it is a positive good in the world... Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built.”

Abraham Lincoln (American President, 1861 – 1865)

Educate Yourself

Cash Out Refinance:

Using Your Home As A Bank

You may love your home and want to remain there. You may also need remodeling or renovation to make it livable or adjust to changing realities. Maybe you need to widen doors to accommodate a wheelchair. Perhaps you need to add a mother-in-law apartment. Perhaps you need to replace your furnishings. Maybe it’s not one big thing so much as dozens of smaller projects necessary to maintain or increase its value and your comfort and security.

One of the simplest ways to pay for these needs is a cash-out refinance mortgage to replace your existing mortgage. You can obtain a new home loan that provides funds for more than you owe for the home with the difference going to you in cash. In this video overview, we’ll explain the terms and the most common uses of cash out refinance loans. We’ll also cover the pros and cons of this sort of loan and help you examine whether this or some other variation is the right loan for you and your circumstances at the moment. We’ll even help you prepare for your loan application and walk you through what to expect.

We can’t make everything about home ownership or refinancing completely painless, or tell you exactly what you should do. But things don’t always have to be as complicated as they sometimes seem, and you don’t have to figure it all out alone.

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Pros & Cons for Cash-Out Refinance Loans

You’ve been making your house payments for years. You take great care of your property. Now you need access to some of that equity to move forward. Is a cash out refinance loan the right call for you?

Pros: Better Terms on Your Debt

Strategic refinancing helps you lock in lower interest rates than your original mortgage. Adding the cash out option allows you to consolidate your most problematic debts and pay them off as well.

Pros: Home Renovations or Repairs

Take on home improvement without going into new debt. While you may extend the number of months until your home is paid in full, your payment may not go up substantially – and sometimes may go down. Either way, the value of your most important investment will be strengthened as a result.

Pros: Improve Your Credit

The number one way to improve your credit history and raise your credit score isn’t to avoid debt – it’s to use debt wisely. Making each month’s required installment on time and in full quickly strengthens your credit across the board.

Cons: Extends Your Debt

In some ways, it’s like you’ve started over on your house payment and paid extra fees up front for the privilege of doing so. Cash out refinance means it will take longer to pay off your home, which in turn means more interest paid over the life of the loan.

Cons: New Costs and Higher Interests

The same ever-changing market rates that mean you might secure better terms means higher interest rates are a possibility as well. Cash out refi also comes with many of the same fees and closing costs as your original mortgage.

Cons: With Great Power Comes Great Responsibility

Refinancing for more than you owe can be a powerful tool and leverage your equity for any number of good things. You’re also risking your home for cash up front with no real limitations on how it’s spent. Make good choices.

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We are a marketing lead generator and advertising service designed to provide you with quick and convenient access to third-party lenders.


We are a marketing lead generator and advertising service designed to provide you with quick and convenient access to third-party lenders.


We are a marketing lead generator and advertising service designed to provide you with quick and convenient access to third-party lenders.


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