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Bottom Line Up Front

  • Cash-out refinancing gives you a lump sum of money tied to your home mortgage.
  • A cash-out refinance may come with a lower interest rate but higher repayment sums and longer terms.
  • Carefully consider whether a cash-out refinance is the right loan choice for you. 

Time to Read

3 minutes

August 23, 2022

Terms to Know

Before we get started, let’s define some of the major vocabulary involved in cash-out refinancing.

  • A cash-out refinance is a new mortgage (replacing your old one) that lets you borrow extra money as part of the mortgage.
  • A fixed home equity loan is a loan with a fixed interest rate and payments that use your home as collateral.
  • A home equity line of credit (HELOC) is a variable-rate loan that uses your home as collateral and can be used like a credit card, in that you only take out the amount you need when you need it.

Looking to pay off high-interest credit card debt, contribute to your child’s education or take on a pricey home improvement project? A cash-out refinance on your home can help pay your way. By refinancing for more than you currently owe, you get access to money that’s otherwise locked up in your home. It's one of the ways to use your home's equity, but you’ll want to be sure you know the facts before signing on the dotted line. Here are 5 things to know about cash-out refinances.

  1. Your refinanced mortgage replaces your old mortgage. Your current loan balance and the amount of cash you take out will make up your new loan principal. This gives you the opportunity to review and choose new options for your mortgage. However, it also means that your monthly mortgage payments will “reset” to being almost entirely interest at the beginning. If your mortgage is young and still mostly interest, this may be an issue.
  2. You’ll probably have to pay more, and for longer. By taking cash out, you’re borrowing more money. You’ll likely pay more per month and/or extend your mortgage to pay it all off. Also, it’s important to note that the shorter the term of the equity loan you take out, the less expensive it may be in the end.
  3. You may be able to lower your mortgage loan’s interest rate. If interest rates or your credit score have improved since you last took out a mortgage, you could score a lower interest rate. These rates may even be lower than home equity loans or credit lines. Be sure to compare interest rates before making a decision to find the right option for you.
  4. You’ll need to pay closing costs. As with your first home loan, refinancing comes with closing costs in the range of hundreds to thousands of dollars. With Navy Federal HELOCs and home equity loans, costs often range from between $300 to $2,000, depending on location, property type and other factors. Cash-Out Refinancing Provides Flexibility

College expenses can mount, as can the costs of many home remodeling projects. In these cases, it’s helpful to have a lump sum available from your refinanced mortgage. A cash-out refinance can alleviate some of the pressure associated with these endeavors, since your home’s equity will be more liquid (available to you as cash) and likely available at a lower rate than alternative loans. You may even improve your debt profile in the process!

Another thing to consider is the difference between getting approved for a refinance rather than a home equity loan or HELOC. These products may have different credit requirements, so talk with your lender about your options.

Explore Home Refinancing Options

Before making any decisions, explore your home equity and refinancing options with Navy Federal to get the loan that makes the most sense for your situation. View our current rates for refinanced mortgage loans and learn more!

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This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.