It’s an ideal time to cash–out refinance
Home equity levels hit record highs in 2021. And mortgage rates are still near historic lows.
That means it’s a great time for homeowners to tap their equity. You can take out cash for home improvements, to buy another property, to invest in the markets, and more.
But make sure you find the best cash–out refinance rate. Because the lower your rate is, the more you maximize the value of your cash–back.
Here’s where to start looking.
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Who has the best cash–out refinance rates?
We scoured a federal government database to identify the lenders with the best cash–out refinance rates.1 On average, the ten lenders with the lowest 30–year cash–out refi rates were:
- Wyndham Capital
- Veterans United
- First Republic Bank
- Zillow Home Loans
- North American Savings Bank
- Navy Federal Credit Union
- Gateway Mortgage Group
- Movement Mortgage
- Freedom Mortgage
These numbers are from 2020 (the most recent data available). But they can give you an idea of which lenders are likely competitive now.
Of course, the best lender on average won’t necessarily offer you the lowest mortgage refinance rate. So you shouldn’t just look at the top rankings and stop there.
You’ll want to do a little research on your own to find the best interest rate and maximize your savings.
How to find your best cash–out refi rate
Let’s start with the obvious. You don’t just want the lowest rate. You want the best overall deal you can get.
And that means looking at closing costs as well as mortgage interest rates.
How to evaluate cash–out refi costs
You’ll want to find a good deal on closing costs when you do a cash–out refinance because these costs are typically taken out of your cash–back. So the higher they are, the less cash you’ll walk away with.
Take a look at one example. Amerisave had the lowest average cash–out rate in our study. But it charged higher average closing costs than some other lenders. Indeed, its median loan costs in 2020 for a cash–out refinance were $4,670. That compares with just $1,630 for Wyndham Capital, which had the second–lowest interest rates.
Of course, it’s always a balancing act. You might care more about a low rate or low upfront costs, depending on your situation.
If you can afford more cash upfront, you might opt for the lowest rate in order to save more long–term. But, if you need every cent you can get, then low loan costs will be your priority.
Shop around for your lowest cash–out refi rate
Different lenders specialize in different borrower profiles. So, if your credit score is a bit iffy, your existing debt is high, or you’re cashing out every last dollar possible, some lenders won’t approve your mortgage application. However, other lenders specialize in borrowers just like you.
And it can work the other way around. Because someone with perfect personal finances might not get as good a deal from a lender that’s used to working with less qualified applicants.
So make sure you speak with multiple loan officers, shop around, and compare at least 3–5 personalized cash–out refi quotes. That’s the only way to find the real best deal for your mortgage refinancing.
Cash–out refinance lenders, ranked
We looked at 50 of the biggest mortgage lenders in the U.S. to find the lowest cash–out refinance rates.
Remember that these rates are averages. Some borrowers will get higher rates, and some lower. Your own mortgage interest rate depends on factors like your credit score, home value, type of loan, and how much equity you’re cashing out.
|Mortgage Lender||Average 30-Year Cash-Out Refinance Rate (2020)1|
|Veterans United (Mortgage Research Center)||3.11%|
|First Republic Bank||3.11%|
|Zillow Home Loans||3.12%|
|North American Savings Bank (NASB)||3.15%|
|Gateway Mortgage Group||3.21%|
|American Financial Network, Inc.||3.29%|
|Paramount Residential Mortgage Group, Inc.||3.33%|
|Guild Mortgage Co.||3.34%|
|Primary Residential Mortgage, Inc.||3.35%|
|New American Funding||3.37%|
|Finance of America||3.38%|
|Bay Equity LLC||3.39%|
|Academy Mortgage Corp.||3.40%|
That’s quite a spread. And it may reflect how comfortable these lenders are with different borrower profiles – and with cash–out refinances themselves.
What affects cash–out refinance rates?
If you’re refinancing, you’ve already been through the mortgage application process as a home buyer. So you’ll know the things loan officers look at when deciding how much to lend you and at what mortgage rate.
However, lenders generally see cash–out loans as a little riskier than an ordinary home loan or refinance. So rates tend to be a little higher for these types of loans. And eligibility requirements may be a bit stricter.
Here are some of the biggest factors that will impact your cash–out refinance loan rate:
- Credit score: You typically need a credit score of at least 620 for a cash–out refi. Some lenders require a higher FICO score. In any case, the better your credit is, the lower your rate will be
- Cash-out amount: The more cash you withdraw from your available equity, the higher rate you’re likely to see on your new loan
- Debt–to–income ratio (DTI): The less you owe in existing debts, the lower your refinance rate is likely to be
- Loan–to–value ratio (LTV): With a cash–out refinance, lenders typically require you to retain 20% of your home’s equity. But the more equity you leave in place beyond that, the lower the refinance rate you stand to get
- Current mortgage rate market: Are current rates high or low when you read this? You can find out here. But remember, rates for cash–out refinances tend to be 0.125% to 0.25% higher than rates rate–and–term (no–cash–out) refinances
- Lender: The lender you choose can make a huge difference to the rate you pay. And you can save several thousand dollars by comparison shopping across several lenders
Nobody expects miracles. And you can only do so much in the months leading up to your mortgage application. But improvements to your financial situation – like paying off credit card debt – could improve your cash–out refinance options. And everyone can comparison shop for lenders.
Cash out refinance closing costs
We’ve already mentioned closing costs. For a cash–out refinance, they’re similar to those you pay for any mortgage: typically between 2% and 5% of the loan amount.
As detailed in this article, refinance closing costs typically include:
- Loan origination fee: 1–1.5% of the loan amount
- Discount points (optional): 0–1% of loan amount or more
- Application fee: $75–$300
- Credit check fee: $25
- Home appraisal fee: $500–$1,000+
- Title search and title insurance: $300–$2,000+
- Survey fee: $150–$400
- Attorney fees: $500–$1,000 (not required in every state)
- Recording fees: $25–$250 (depending on location)
- Processing and/or underwriting fee: $300–$900 each
- Prepaid taxes and homeowners insurance: Varies
Of course, you don’t always have to pay these costs and lender fees out of pocket. Many borrowers simply add them to the balance on their new mortgage.
The upside of doing this is that you’re spreading those costs over the term of your mortgage. And you probably won’t even notice the added expense on your mortgage payment each month.
But you should be aware of the downside. Because you’ll be paying interest on those costs, perhaps for 30 years. So it’s not a cheap alternative. And, if you can afford to pay for them yourself, you’ll save in the long run.
Who has the lowest cash–out refi closing costs?
The same cash–out refinance data for 2020 covers closing costs as well as mortgage rates. So we’ve listed the 25 lowest:
|Mortgage Lender||Avg. Cash-Out Loan Costs, 2020 (as % of Avg. Loan Amount)||Example: Upfront Costs for$250,000 Mortgage|
|First Republic Bank||0.33%||$824|
|North American Savings Bank (NASB)||0.78%||$1,954|
|Zillow Home Loans||1.01%||$2,535|
|Bank of America||1.04%||$2,612|
|Prosperity Home Mortgage, LLC||1.11%||$2,787|
|Finance of America||1.20%||$3,003|
|Gateway Mortgage Group||1.26%||$3,141|
|Bay Equity LLC||1.35%||$3,382|
Again, that’s a very wide spread. And when you view rates and costs side by side you can see the need to shop around between several lenders.
When you request a quote from a lender, you’ll receive a standardized document (a “Loan Estimate“) that makes it easy to compare loan offers. In particular, look out for information such as your annual percentage rate (APR) and the amount you’ll pay down over the first five years of the loan.
Cash–out refinance options
Homeowners who want to cash out their home equity to fund financial goals have options. While most home loans can be refinanced, not all can be cashed out.
Thankfully, the most popular loan programs all offer a version of cash–out refinancing.
Conventional loan cash–out refinance
A conventional cash–out refinance may be ideal for borrowers with good credit scores and more than 20% equity.
Fannie Mae and Freddie Mac set the rules for conventional cash–out refinances.
If you’ve owned your home for a few years, chances are you qualify for this type of loan. Plus, if your current home is financed with an FHA loan, then you can get rid of unwanted mortgage insurance premiums (MIP).
Guidelines will vary depending on your lender, but you can expect to meet these requirements:
- More than 20% equity in your home
- Appraisal to confirm your home’s value
- A credit score of at least 620
- Debt–to–income ratio (including the new loan) of 43% or less
- Loan–to–value ratio of 80% or less
- Employment and income verification
The maximum loan amount for a conventional cash–out refinance is currently $, and up to $ in high–cost real estate markets.
FHA cash–out refinance
Homeowners with an FHA loan have two refinance options.
Eligibility requirements and borrowing costs will vary by lender, but you can generally expect to meet these guidelines:
- The home must have been your primary residence for the past 12 months
- Satisfactory repayment history for the past 12 months, with no 30–day late payments
- Your new loan must conform to FHA loan amounts, which vary by county
- A minimum credit score of 600 is typically required
You’ll need to pay upfront fees, but this expense can be financed into the new loan. As with any FHA mortgage, there’s both an upfront and annual mortgage insurance fee.
VA cash–out refinance
The Department of Veterans Affairs offers two types of mortgage refinancing products: a Streamline Refinance and a cash–out refinance.
With the VA cash–out refinance, borrowers can access 100% of their home’s equity as long the new loan is within maximum guarantee amounts.
You’ll need to meet eligibility requirements set by both the VA and your lender, which include:
- Home appraisal by a certified VA appraiser
- Credit score of at least 580–620, varies by lender
- Debt–to–income ratio below 41%, varies by lender
- Steady income and employment
The VA cash–out refinance is an appealing type of loan because of its high loan–to–value maximum, lack of monthly mortgage insurance, and lenient FICO score guidelines compared to other cash–out loan programs.
Cash–out refinance rates FAQ
Yes, normally. Expect your rate to be about 0.125–0.25 percent higher than the standard refi rates you’d qualify for. This is because lenders know that cash–out refinance loans are riskier than no–cash–out loans. That means they have higher interest rates across the board.
On our list, AmeriSave had the best cash–out refinance rates in 2020, which was the most recent data available when this was written in March 2022. But that doesn’t necessarily mean it will provide you with the best deal you can get. Because the data looks at about averages and you’re not average. So shop around between several lenders. That’s the best way to find your personal best rate and costs.
In the second quarter of 2021, the average mortgage holder had $153,000 in tappable equity, according to Black Knight. But your own tappable equity will depend on your mortgage balance and the fair market value of your home. Most lenders want you to retain 20 percent of your equity. So your total mortgage borrowing can’t exceed 80 percent of your home’s value. And you can borrow the difference between that 80 percent and your current mortgage balance, minus closing costs.
You’ll likely get an ultra–low rate if your credit score is 740 or better. You should also have a clean credit history and credit report. You may be able to get a cash–out refinance with a score in the 620–640 range – or even 600 for an FHA loan. Unfortunately, the lower your score, the higher the rate you’re likely to pay.
Yes. And they vary a lot, often between 2 and 5 percent of the new loan amount. But you can usually roll the upfront fees into your new loan so you don’t have to pay them out of pocket.
Your monthly mortgage payments will likely increase after a cash–out refinance. That’s because the new loan amount is bigger than your existing loan amount.
There are no rules about how you can use the funds from a cash–out refinance. Popular uses for cash–out refinancing include paying for home improvements or renovations, debt consolidation, paying off high–interest debt like credit cards, student loans, or personal loans, and investing in a business, real estate, or college tuition.
Yes. In fact, only USDA loans don’t allow cash–out refinances. However, the FHA insists you retain 80 percent of your equity. And, if you have that much, you can usually refinance to a conventional loan, which means you’ll never pay mortgage insurance again. Typically, only those with credit scores in the 600–640 range need an FHA cash–out refinance.
Yes! And it’s the best sort of cash–out refinancing. Because many lenders allow you to refinance up to 100 percent of your property value with a VA loan, which means you can take all your available equity as cash back.
Yep. But you’ll need a higher credit score (likely in the 700s) and lots of home equity built up in the property.
A cash–out refinance is typically the best choice if you want to tap home equity while also changing the rate or loan term on your current mortgage. If you want to leave your current loan in place, you might consider a second mortgage instead. Second mortgage loan options include a fixed–rate home equity loan or variable–rate home equity line of credit (HELOC).
The main way to get a lower interest rate is to shop around among a few different lenders and choose the best deal. You can also reduce your rate by improving your credit score, paying down existing debts, and limiting your cash–back amount. Borrow only as much money from your home equity as you really need.
Yes, cash–out refinancing can also replace an adjustable–rate loan with a fixed–rate mortgage or switch to a shorter loan term which can reduce your interest payments over time.
What are today’s cash–out refinance rates?
Mortgage rates are still historically low. And U.S. homeowners have built up a record amount of equity over the past couple of years.
If you need cash, tapping your equity can be an affordable way to access a large sum of money.
Shop with a few cash–out refinance lenders to see what rates you qualify for today.
1Rates and fees shown reflect self-reported data lenders are required to file each year under the Home Mortgage Disclosure Act (HMDA). These numbers are average only and do not reflect the interest rate or fees you will be offered.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.