Home equity
Cash-out refinance: the fine print
The short answer
A cash-out refi replaces your whole mortgage, not just adds to it.
- Refinancing resets your entire mortgage to today's rate. A low existing rate is lost.
- Closing costs apply to the whole new balance, not only the cash you take out.
- Restarting a 30-year term can add years of interest to the total.
- Watch for discount points. They inflate the upfront cost to reach a lower rate.
- The catch: the biggest hidden cost is trading away a low first-mortgage rate to reach a fairly small amount of cash.
The fine print that costs people money
A cash-out refi can be the right move. But a few terms decide whether it costs you or saves you. Check each one before you sign.
- You lose your old rate. A refi replaces your mortgage, so the new rate applies to the whole balance, not only the cash. If your current rate is low, that is the most expensive thing to give up.
- Closing costs scale with the whole loan. They run about 2–6% of the entire new mortgage, not the cash you pull out. On a large balance, the dollar cost is large.
- The clock restarts. A fresh 30-year term lowers the monthly payment. It can also add a lot of total interest, since you are paying for longer.
- Points and buydowns. A lower rate quote may assume you pay discount points up front. Check that cost before you compare offers.
- Your home is on the line. This is your first mortgage. Falling behind on it risks foreclosure, not just a late fee.
⚠ The catch
Compare a cash-out refi against a simpler option: keep your current mortgage and add a second loan on top of it.
If your existing rate is low, the second loan usually wins, because you keep the cheap rate on your big balance. Run both before you choose. See refi vs. a second mortgage and what a cash-out refi really costs.