How to Refinance a Mortgage and Cash Out

Refinancing your mortgage can do more than cut your monthly payments. A "cash-out" refinancing allows you to take out a larger mortgage when you refinance: If you have $50,000 of debt left on a $110,000 house, for example, and you refinance up to an $80,000 mortgage, you'll have $30,000 to spend. Cash-out refinancing usually offers lower interest rates than a home equity loan, though the payment schedule normally stretches out for much longer than the loan would.


Check the costs of refinancing. If the interest rates are higher than when you took out your mortgage, it makes no sense to refinance, according to You should also look at the closing costs, which can add up to thousands of dollars. A slight reduction in your monthly mortgage payment may not be worth the cost of the fees, particularly if you plan to move before making many more payments.


Provide potential lenders with your financial information and the documentation to prove it. Qualifying you for refinancing works the same way as a regular mortgage. Your lender will want confirmation that your credit is good, your house is worth more than the size of the new mortgage and you have enough steady income to make payments on the refinanced mortgage. The lender also will want assurance that your monthly debts aren't too high. A reasonable debt-to-income ratio is 36 percent--that is, your mortgage payments, property taxes and insurance, coupled with other debts such as credit card payments or alimony, are less than 36 percent of your gross monthly income.


Compare the Annual Percentage Rate on mortgage offers from different lenders. The APR converts all the fees and interest on the loan into a single interest rate to make it easier to compare the overall costs and see which mortgage offer is best.


Pay the closing costs. Refinancing requires many of the same fees your original mortgage did, including the cost of processing the loan, appraising the house and making a title search. Your lender may also want you to pay points--pre-paid interest--when you close. Once the fees are paid and the closing documents are signed, your mortgage is refinanced.

Things Needed

  • Bank statements
  • Tax records
  • Credit card bills


  • Most lenders prefer borrowers have at least 20 percent ownership stake in their house. If you have a $60,000 mortgage left on a $100,000 house and your cash-out mortgage is more than $80,000, your equity is less than 20 percent. The interest rates will be a lot higher than if you stay at the $80,000 level.


  • There are times a home equity loan is a better way to tap your home's value than a cash-out refinance, such as when interest rates are higher than your current mortgage, or if you only have a few years to go before the mortgage is paid off.



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