Dear Money Mentor: What is cash-out refinancing and is it right for you?

April 05, 2023

Turning the equity in your home into cash can help you pay for things like home improvements and high-interest debt. Here’s what you need to know before deciding if cash-out refinancing is the right product for you. 

If you own a home, chances are you’ve built some equity. That’s the difference between what you owe and how much your home is worth. If you need cash, tapping into this equity might be a good option and a cash-out refinance is one way to do it. We spoke with U.S. Bank mortgage sales officer Marketa Shouse to help us understand what a cash-out refinance is all about. 

What is a cash-out refinance?

“In simple terms, a cash-out refinance allows you to tap into your home equity by replacing your current mortgage with a new, larger mortgage,” Shouse says. “You get the difference in cash between the new mortgage amount and your previous mortgage payoff.” 

How much cash you can get depends upon your home value. In general, you can borrow up to 80% of your home’s market value.   

What is it good for? 

You might be wary of refinancing your home when interest rates are high. But Shouse says, “there is no cheaper way to borrow money than using your home as collateral.” Still, you must be careful. “As with any home loan, if you can’t make the payments, you risk losing your house.” 

With that in mind, it’s a good idea to use the money in ways that will give you a return on your investment, for example home improvement projects that add equity to your home, for investment opportunities like buying a rental property, or to pay for school.  

It’s also a good option for paying down high-interest debt. Refinance rates are usually lower than credit cards or personal loans, so it allows you to consolidate multiple loans into one loan with a single lower-cost monthly payment.  

“This is a really good option for people who can’t qualify for other types of home loans,” according to Shouse. “Sometimes, people don’t have the credit score required to get a home equity loan (HEIL) or home equity line of credit (HELOC), or they’ve taken advantage of a COVID forbearance or loan modification that limits their eligibility for these other products that use their home as collateral.” 

How much can you get?  

Most lenders allow you to borrow up to 80% of your home’s value. If you still have a balance on your original mortgage, you’ll have to subtract that from the cash you could receive. 

As an example, if you have a home worth $250,000, the maximum loan you could take out would be 80% of the home's value or $200,000. Subtract what you owe on your current loan, perhaps its $150,000, and you could get back up to $50,000 in cash at closing. 

Shouse says to “keep in mind, lenders will require you to get an appraisal to determine your home's value and you’ll need to pay closing costs and fees, which can total 2%-5% of the new mortgage. That comes out of the amount of cash back you’ll be getting.” 

What are the cash-out refinance requirements? 

Requirements vary by lender (so do rates!) so it’s a good idea to shop around. But in general, here are some of the main requirements: 

  • Credit score: While you don’t have to have great credit, the better your credit score the better your interest rate will be. Many lenders will secure a cash-out refinance for people who have a credit score in the 600s. 
  • Debt-to-income ratio (DTI): This is the amount of debt you have each month (mortgage, bills, etc..) divided by your monthly income. Usually, you need a DTI of 50% or less.  
  • Home equity: Most lenders require that you maintain at least 20% equity in the home. Equity is the difference between what your home is worth and what you owe your lender. 

What’s the difference between a cash-out refinance and a home equity loan and line of credit?

The main difference is that a cash-out refinance replaces your current mortgage while a home equity loan or line of credit is a second mortgage -- you pay it while also paying your current mortgage. 

The rate for a cash-out refinancing is generally lower than for a home equity loan or line of credit, and depending on the market, could be lower than your current mortgage rate.  

A cash-out refinance usually comes with closing costs, but if you use the money to make home repairs or improvements you may be able to deduct the mortgage interest from your taxes. 


Learn more about Cash-out refinancing at U.S. Bank and other refinancing options. Ready to take the leap? Find a mortgage loan officer and we’ll help you get started on your way.  

Related content

What are conforming loan limits and why are they increasing

What’s the difference between Fannie Mae and Freddie Mac?

Checklist: 10 things to look for when touring a home

Saving for a down payment: Where should I keep my money?

What is refinancing a mortgage?

Mortgages after retirement: Here’s what to know

Mortgage basics: What’s the difference between interest rate and annual percentage rate?

Mortgage basics: Finding the right home loan for you

Uncover the cost: Home renovation

Mortgage basics: How much house can you afford?

Mortgage basics: 3 key steps in the homebuying process

Mortgage basics: Buying or renting – What’s right for you?

Mortgage basics: What is refinancing, and is it right for you?

Uncover the cost: Building a home

Mortgage basics: Prequalification or pre-approval – What do I need?

Mortgage basics: How does your credit score impact the homebuying experience?

How to sell and buy a home at the same time

10 ways to increase your home’s curb appeal

4 ways to free up your budget (and your life) with a smaller home

5 things to avoid that can devalue your home

8 steps to take before you buy a home

Momentos Financieros: Cómo financiar una ampliación de la vivienda

Checklist: 6 to-dos for after a move

How I did it: Bought a home without a 20 percent down payment

These small home improvement projects offer big returns on investment

What is a mortgage?

Dear Money Mentor: What is cash-out refinancing and is it right for you?

The lowdown on 6 myths about buying a home

Checklist: financial recovery after a natural disaster

Simple steps to be ready for a natural disaster

Tips for realtors to help clients get their homeownership goals back on track

3 tips for saving money when moving to a new home

5 ways to maximize your garage sale profits 

Pros and cons of a personal line credit

For today's homebuyers, time and money are everything

Putting home ownership within reach for a diverse workforce

How jumbo loans can help home buyers and your builder business

How does a home equity line of credit (HELOC) work?

What types of credit scores qualify for a mortgage?

Can you take advantage of the dead equity in your home?

Home equity: Small ways to improve the value of your home

Is a home equity line of credit (HELOC) right for you?

How to use your home equity to finance home improvements

Should you get a home equity loan or a home equity line of credit?

6 questions to ask before buying a new home

What is an escrow account? Do I have one?

Quiz: How prepared are you to buy a home?

10 questions to ask when hiring a contractor

What to know when buying a home with your significant other

What is a home equity line of credit (HELOC) and what can it be used for?

Dear Money Mentor: When should I refinance a mortgage?

Building a dream home that fits your life

Are professional movers worth the cost?

First-time homebuyer’s guide to getting a mortgage

Beyond the mortgage: Other costs for homeowners

How I did it: Bought my dream home using equity

Get more home for your money with these tips

How I did it: Built living spaces to support my family

Community activist achieves dream of homeownership

Bringing economic opportunity to underserved communities one home at a time

Managing the impacts of appraisal gaps in a hot housing market

Is it the right time to refinance your mortgage?

Spring cleaning checklist for your home: 5 budget-boosting tasks

Overcoming high interest rates: Getting your homeownership goals back on track

Home improvements with the best ROI

PCS moving checklist for military spouses and families

Home buying myths: Realities of owning a home

House Hacks: How buying an investment property worked as my first home

How we did it: Converted to solar power

Should you buy a house that’s still under construction?

10 uses for a home equity loan

Your guide to breaking the rental cycle

How you can take advantage of low mortgage rates

Buying a home Q&A: What made three homeowners fall in love with their new home

Improving your credit score: Truth and myths revealed

What you need to know about renting

What’s a subordination agreement, and why does it matter?

Money Moments: Tips for selling your home

How I did it: My house remodel

DIY home projects 101: tips from a first-timer

Crypto + Homebuying: Impacts on the real estate market

Military homeownership: Your guide to resources, financing and more

4 questions to ask before you buy an investment property

Preparing for homeownership: A guide for LGBTQ+ homebuyers


Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.