Cash-Out Refinance

A cash-out refinance replaces your existing mortgage with a new, larger one — and you pocket the difference at closing. It's how investors extract equity from properties without selling them.

If you bought a property for $300,000 with a $240,000 mortgage and it's now worth $500,000, you have $260,000 of equity. A cash-out refinance lets you tap that equity, replace your old mortgage with a new one (say $400,000 — 80% of the new appraised value), pay off the existing $240,000 balance, and walk away with $160,000 in cash.

How cash-out refinance works

Five steps:

1. Property appraisal. Lender orders a current appraisal. The new loan is based on this value, not your purchase price.

2. New loan amount calculated. Typically 75-80% LTV on investment property cash-outs.

3. Existing mortgage paid off. Your current loan balance is paid in full at closing.

4. Closing costs paid. Origination, appraisal, title, and other fees are deducted from the new loan proceeds.

5. Net proceeds to you. Whatever remains after the existing mortgage payoff and closing costs is yours.

Cash-out refinance vs. HELOC

Both extract equity. Key differences:

• Cash-out refi: Replaces existing mortgage. Lump sum at closing. Fixed rate. Resets your loan term.
• HELOC: Sits as second lien on top of existing mortgage. Revolving access to funds. Variable rate. Doesn't disturb first mortgage.

The decision usually comes down to your existing rate. If your current mortgage is at 3.5% and current cash-out rates are 7%, you'd lose the favorable rate by refinancing — HELOC is usually the better choice. If your existing rate is similar to current rates, cash-out refi is cleaner.

What investors use cash-out refi for

Next deal funding. Pull equity from a stabilized rental → use as down payment on the next acquisition. Classic portfolio scaling move.

BRRRR completion. The "Refinance" step in BRRRR is typically a cash-out refi — pull capital out of the rehabbed property to recycle into the next deal.

Debt consolidation. Pay off higher-interest debts (credit cards, personal loans, hard money) at mortgage rates.

Major property improvements. Fund significant renovations or capital expenditures on the same property or another.

Tax-advantaged capital extraction. Cash-out proceeds are NOT taxable — you're borrowing against equity, not realizing a gain. Compared to selling, this can mean substantial tax savings (especially if you'd otherwise owe capital gains and depreciation recapture).

What to watch for

Seasoning requirements. Most lenders require 6 months of ownership before allowing cash-out at the appraised value rather than purchase price. Some allow shorter; many require longer.

Rate environment. If you're refinancing into a higher rate than your current mortgage, the math changes. Calculate the breakeven: how many years does it take for the equity unlocked to outweigh the higher monthly payment cost?

Closing costs. Cash-out refi closings cost 2-4% of the loan amount. On a $400K refi, that's $8-16K coming out of your proceeds.

LTV impact. Pulling out equity means higher leverage on the property. If property values decline, you have less buffer.

Rate Hero's cash-out refinance program

Rate Hero offers DSCR cash-out refinance up to 80% LTV on approved credit. Standard 30-year amortization. We close in your LLC, accept properties with seasoning as short as 3 months in qualifying scenarios, and don't require personal income documentation — the property's DSCR is the primary qualification.

The 80% LTV ceiling matters. Most lenders cap cash-out refi at 75%. The 5% extra leverage on a $500K property unlocks $25,000 of additional capital — often the difference between funding the next deal in full or having to wait another quarter.

For investors recycling capital across a portfolio, cash-out refi is the most efficient extraction method. Talk to us about the property, your existing mortgage, and what you want to deploy the capital into. We'll show you whether cash-out refi or HELOC is the better tool for your scenario.