Skip to Content
Calculator Sitting on Top of Money Next to Notepad

How to Do a Cash-Out Mortgage Refinance

Cash-out refinance rates and requirements are different depending on the type of loan you are refinancing.

The term cash-out refinance refers to obtaining a new mortgage to replace your existing one and getting cash back in the process. You essentially take out a new loan for a greater amount than your current mortgage and spend the cash back how you see fit.

If you have a conventional or Federal Housing Administration (FHA) loan, you can typically receive up to 80 percent of the value of your home. You could receive up to 100 percent of your home’s value with a Veterans’ Administration (VA) loan.

Typical Qualifications for a Cash-Out Mortgage Refinance

Keep in mind that each lender will have slightly different qualification requirements for this type of refinance deal. However, here is the most common criteria:

  • A minimum credit score of 620

  • An 80 percent or greater loan-to-value ratio, which means you must retain at least 20 percent of the equity in your home after taking out the loan

  • 50 percent or lower debt-to-income ratio

And here are the factors lenders consider when determining how much loan to offer you:

  • The current value of your home

  • How much you owe on your current mortgage

  • Amount of equity required by the lender

The amount of cash you will receive is the difference between the new loan amount and the balance on your existing mortgage.

You will also need to present several forms of documentation to gain approval for a cash-out refinance loan. Typical examples include proof of income, satisfactory payment history on your current mortgage, and a current appraisal of your home conducted within the last 90 days.

Pros and Cons of a Cash-Out Refinance

As with most things, there are pros and cons of a cash-out refinance that you should consider before making a decision.

Cash-Out Refinance Pros

One of the leading reasons people apply for a cash-out refinance is to lower their mortgage interest rate. You will also pay a lower interest rate when repaying the cash you took out on the loan. With historically low mortgage interest rates still the norm, you may be able to lower your monthly mortgage payment significantly.

Here are some other benefits to consider with a cash-out mortgage refinance loan:

  • You can consolidate credit card and installment debt into a single payment. However, you should consider this option carefully since mortgage loans can span as long as 30 years. Although you would save money with lower interest rates upfront, you could ultimately end up paying more by taking longer to pay off your debt.

  • You can use the money you receive back from the loan to pay large expenses such as home repairs or college tuition. Both provide a return on investment, and your interest rate will be much lower.

  • You may be able to deduct mortgage interest on your tax return.

Cash-Out Refinance Cons

Before taking out a cash-out mortgage refinance loan, be sure you understand all fees associated with the transaction and determine your break-even point before proceeding with it. This is an important step as you don’t want to find out later that the fees are too steep.

Other than the fees, you should also remember the following:

  • Try to avoid spending the money on non-essential things, such as a vacation, or you could find yourself in even greater debt.

  • Since the refinancing loan is associated with your home, you risk losing your home if you fall significantly behind on payments.

  • It will take you longer to pay off your mortgage unless you make extra payments.

How Does a Cash-Out Refinance Work?

Once you have carefully weighed the benefits and drawbacks of a refinancing loan, you will need to complete a few additional steps before applying for one.

Obtain Your Free Credit Report Before Applying for a Refinance Loan

When you know you will soon be applying for a large loan, it is always a good idea to obtain a copy of your credit report. Under the Fair Credit Reporting Act (FCRA), you may request one report each year from Experian, Equifax, and Transunion at no charge.

You should review your credit report before applying for a refinancing loan to make sure it doesn’t contain any errors that could cause the lender to deny your application. Contact the reporting agency right away if this occurs and ask for a correction. The FCRA provides 30 days for the agency to correct the error or explain why it is correct and should stay on your file.

Arrange a Home Appraisal

The amount of your new loan depends entirely on the current value of your home. Most lenders offering cash-out refinancing loans require applicants to obtain a home appraisal no sooner than 90 days before closing. You will need to pay for the home appraisal with your own funds.

Compare Cash-Out Refinance Rates and Loan Terms

When comparing lenders, remember that even a quarter of a percent difference with interest rates can mean paying thousands of additional dollars over the course of the loan. You also want to pay attention to whether the lender offers you a fixed or adjustable interest rate.

Closing a Cash-Out Refinance

The closing process for a cash-out refinancing loan is similar to an original mortgage loan except that it does not involve another party. You will meet with a lender to sign several documents and remit any outstanding fees. At Listerhill Credit Union, you can complete many of your closing details online, including signing documents electronically.

Listerhill Credit Union is here to help with your cash-out refinance or any of your financial needs.

See our low rates and easy pre-approval process

default icon for Solution Finder Intro
What can we help you with?
default icon for Checking For Mature Members
What are you borrowing for?
default icon for Checking For Mature Members
Vehicle Options
default icon for Checking For Mature Members
Home Options
default icon for Carrolls
What are you saving for?
default icon for Carrolls
How old are your kids?
default icon for Cord
Which of these banking options are you interested in?
default icon for Cord
How old are you (or your child)?
default icon for Cord
How old are you?
default icon for Cord
What kind of account are you looking for?
search popup background

What are you looking for?

Common Links

Frequently Asked Questions

  • What is the Listerhill Credit Union service area?

    We offer membership to people who live, work, worship, or attend school in northwest Alabama and south-central Tennessee. Community donations are available to nonprofits based within these areas.

  • What kinds of causes do you tend to support?

    We aim to support a wide range of non-profit organizations that are contributing to community development and enrichment in our focus areas. Your nonprofit may be eligible to receive a donation for things like improving schools, boosting economic development, helping underserved communities with food or clothing, or even providing affordable housing.

  • When should I submit my request for community donations?

    Requests must be submitted at least two weeks in advance of the time when you need the funds or prior to the event you are fundraising for.

    This is because our socially responsible investment strategy requires that we have time to go over each request and make sure we are using the credit union's community donations in the most impactful way.

  • I'm having technical difficulties. Who should I contact?

    Please contact us at, using our chat bubble in the bottom right corner or by calling us at 256-383-9204 for assistance.

  • Can I use ClickSWITCH to switch my bill payments?

    Since bill payments are not automatically recurring, you're not able to use ClickSWITCH for them.