A cash-out refinance replaces your existing home loan with a new, larger loan. The difference between the two loans is the amount of cash you withdraw from the total equity in your home. There are no restrictions on the use of the withdrawn cash.

Cash-out refinance closing costs range between 2-6% of the total loan amount and are deducted from your “cash-out” at closing. Cash-out closing costs are typically higher than other refinance options because rates are higher and many borrowers opt to buy down their rate with mortgage points. These optional mortgage points increase your closing costs. 

Most lenders require you to retain 20% equity in your house after the cash-out is complete. This is called having a loan-to-value (LTV) ratio of 80%. Maintaining 20% ownership of the property ensures you can avoid having to pay private mortgage insurance (PMI). It can also help to prevent you from being underwater (owing more than your home is worth) if market conditions change.

If you need cash, have enough equity, and interest rates are favorable, a cash-out refinance might be the right solution. 

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Compared to high-interest credit cards, it may be more affordable to access the cash you need with a cash-out refinance. Plus, if current interest rates are lower than your existing rate, you can both access the cash you need and lock in a lower interest rate over the life of the loan.