What a cash-out refinance really costs: pricing the cash you take out

The new rate lands on the whole balance

The CFPB describes a cash-out refinance as replacing your existing mortgage with a bigger mortgage and taking the difference in cash. Its guide to using home equity notes that because the new loan replaces the one you have, your interest rate and other loan terms change. Its HELOC booklet lists, among a cash-out refinance’s drawbacks, closing costs that are generally higher and a rate that may exceed your current one.

Take a hypothetical home worth $480,000 with a $228,000 balance at 3.125% and 24 years left, a principal-and-interest payment of $1,126.29. You need $65,000. A 30-year cash-out refinance at a hypothetical 7.25%, with $9,000 of closing costs added to the loan, creates a $302,000 mortgage at 62.9% of the home’s value. The payment rises by $933.88, to $2,060.17. Of that new loan, $228,000 was already borrowed at 3.125%; the refinance moves it to 7.25% too.

The alternative keeps the 3.125% mortgage and borrows the cash separately, with a fixed-rate home equity loan or a home equity line of credit, which usually has a variable rate. Here it is a hypothetical 15-year home equity loan at 8.50% with $1,500 of costs added. Its higher rate applies only to $66,500, and the two payments total $1,781.14, or $279.03 less than the cash-out payment.

Sources: CFPB: Alternatives to a HELOC · CFPB: Using home equity to meet financial needs (PDF) · CFPB: What you should know about HELOCs (PDF)

Closing costs are estimated on the whole new loan

Freddie Mac says to expect to spend 3% to 6% of your loan principal on refinancing, and that the total depends on your lender, your credit score, and your location. It is a rule of thumb, but with a cash-out refinance the principal is the entire new mortgage. On a $302,000 loan, that range is $9,060 to $18,120, even though only $65,000 of it is new money, so the example’s $9,000 is a low estimate.

Adding the costs to the loan does not make them free: in the example, the $9,000 is borrowed at 7.25% for 30 years. Count cash and financed costs in one total, and once you apply, use each lender’s Loan Estimate.

Sources: Freddie Mac: Planning to refinance

Pricing adjustments for taking cash out

Loans sold to Fannie Mae carry loan-level price adjustments, or LLPAs: fees set by features such as credit score, loan-to-value ratio, and loan purpose. Fannie Mae’s matrix dated September 9, 2026, has a separate cash-out grid that is higher, cell for cell, than the grid for limited cash-out refinances, which take little or no cash. If the hypothetical borrower’s credit score were 740 to 759 (Fannie Mae’s “Classic FICO” grid), at a loan-to-value ratio from 60.01% to 70.00%, the cash-out adjustment would be 1.000% of the loan, against 0.250%. On the $302,000 example loan, that is $3,020 instead of $755, a difference of $2,265. The example assumes this cost is built into the hypothetical 7.25% rate.

The adjustment generally rises with the loan-to-value ratio and falls as scores rise: from 75.01% to 80.00%, it is 2.375% at a 740 to 759 score and 3.750% at 680 to 699. The matrix states that LLPAs are calculated on the principal balance and are cumulative. They are charged to the lender, but FHFA explained in 2015 that most lenders convert them into the interest rate. So a cash-out quote can sit above Freddie Mac’s survey average for purchase loans, 7.03% for a 30-year fixed loan the week of September 24, 2026. FHA and VA loans are excluded from the matrix; ask any lender how cash out changes its price.

Sources: Fannie Mae: Loan-level price adjustment matrix (PDF) · FHFA: Guarantee fee review fact sheet (2015) · Freddie Mac: Mortgage rate survey archive

What the cash really costs

To price the cash roughly, divide the extra interest you pay each year to have it by the cash. Over five years, the current loan alone would cost $33,042 of interest. Adding the home equity loan raises that to $58,650, or $5,122 a year more, which is 7.9% of the $65,000. The cash-out refinance costs $106,634: $14,718 a year more, or 22.6% of the cash. This is a ratio, not an interest rate. Most of the cash-out figure comes from repricing the $228,000 that was already at 3.125%.

The measure is rough: it leaves out the closing costs themselves and divides by the full $65,000 as balances fall, which is why the home equity loan shows 7.9%, below its 8.50% rate. The cash-out path also leaves $285,024 owed after five years, against $246,281 for the two loans, a difference of $38,743. The second loan tends to cost less when your current rate is well below the new one and your balance is large next to the cash; with a small balance, a much higher second-loan rate, or a current rate near the new one, the result can flip. The CFPB notes that depending on the terms, a cash-out refinance may be more or less expensive than a HELOC.

Sources: CFPB: Alternatives to a HELOC

How much cash the major programs allow, and when

Fannie Mae’s Eligibility Matrix, dated August 5, 2026, caps a cash-out refinance of a one-unit principal residence at 80% loan-to-value, lower for some property types. FHA’s Handbook 4000.1 sets the same 80% for loan-to-value and combined loan-to-value. VA’s rule, 38 CFR 36.4306, allows up to 100% of the home’s reasonable value as VA determines it; above 90%, the new loan must also meet another of the rule’s net tangible benefit tests, such as a lower rate or payment. In the example, 80% of $480,000 is $384,000, which would allow at most $147,000 of cash if costs stayed at $9,000; since estimated costs and pricing adjustments rise with the loan, the real maximum is somewhat lower.

Programs also set waiting periods, often called seasoning. Fannie Mae’s Selling Guide requires at least one borrower on title for six months before the loan is disbursed, with exceptions such as an inherited home, and a first mortgage being paid off generally must be at least 12 months old (a co-owner buyout under a legal agreement is an exception). FHA generally requires 12 months of ownership and occupancy as a principal residence before the case number is assigned (an inherited home that has not been rented is an exception), at least six months of payments on the current loan, and generally on-time payments for the past 12 months. VA’s cash-out loan is for a home you live in. On every VA cash-out refinance, the lender must estimate the equity being removed within three business days of application and again at closing, and if a VA loan is being refinanced, the rule also requires the later of 210 days from its first payment and its sixth monthly payment.

Sources: Fannie Mae: Eligibility Matrix (PDF) · Fannie Mae Selling Guide: Cash-out refinance transactions · HUD: FHA Single Family Housing Policy Handbook 4000.1 (PDF) · eCFR: 38 CFR 36.4306, VA refinancing loans · VA: Cash-out refinance loan

Restarting the clock on a 30-year term

The CFPB’s home equity guide notes that cash-out refinances are usually repaid over 30 years, so your balance decreases at a slower rate. With 24 years left in the example, a 30-year cash-out refinance would restart the clock and add six years of payments.

Paid to the end with required payments only, the cash-out loan would charge $439,662 of interest, against $147,745 for the current loan and home equity loan together. A shorter new term narrows the gap but raises the payment, so compare each quote with the years left on your current loan.

Sources: CFPB: Using home equity to meet financial needs (PDF)

Canceling a cash-out refinance, and when the cash arrives

Under Regulation Z, a refinance of your principal home generally carries a right of rescission: each owner can cancel until midnight of the third business day after closing, or later if the notice or required disclosures arrive later. Until then, and until the lender is reasonably satisfied you have not canceled, it cannot release the cash other than into escrow, unless you waive the wait for a bona fide personal financial emergency. Expect the money a few days after you sign.

If you refinance with the original lender (or its successor in a merger), the right is narrower: Regulation Z and its official interpretation make only the new money rescindable, not the payoff of your old loan. With a new lender, the whole refinance is generally rescindable.

Sources: CFPB: Regulation Z § 1026.23, right of rescission

How the IRS treats the interest

IRS Publication 936, for 2025 returns, says interest on a loan secured by your home is not deductible to the extent the proceeds were not used to buy, build, or substantially improve it. When you refinance, the new debt is treated as home acquisition debt up to the old mortgage’s principal balance just before the refinancing: $228,000 in the example, if the original loan qualified. The other $74,000 (the $65,000 of cash plus the $9,000 of financed costs) qualifies only to the extent it goes to those uses.

For debt taken on after December 15, 2017, the deduction covers up to $750,000 of home acquisition debt ($375,000 if married filing separately), and you must itemize. Keep records of how you spend the cash, and ask a tax professional before counting on a deduction.

Sources: IRS: Publication 936, home mortgage interest

Your next-step checklist

• Write down your current rate, balance, and years left.
• Get a cash-out quote and a home equity loan or HELOC quote for the same cash.
• Ask how much of the rate or points reflects cash-out pricing.
• Count closing costs on the whole new loan, whether paid in cash or financed.
• Compare five-year interest, balances, and the extra interest per year as a share of the cash.
• Confirm the rescission deadline and when the funds will be disbursed.