Real Estate Investing Glossary
Cash-Out Refinance
Last reviewed 2026-07-15
A cash-out refinance replaces your mortgage with a larger one and pays you the difference in cash, converting home equity into spendable capital.
What is a cash-out refinance?
A cash-out refinance replaces an existing mortgage with a new, larger loan and hands the borrower the difference in cash at closing. If you owe $150,000 on a home worth $300,000, refinancing into a $225,000 loan (75% LTV) retires the old mortgage and delivers roughly $75,000, minus closing costs, as tax-free loan proceeds.
Lenders cap cash-out refinances at lower LTVs than purchase loans: typically 80% on a primary residence and 70% to 75% on investment properties, with rates slightly above equivalent no-cash-out loans. Conventional guidelines also impose seasoning requirements, generally six to twelve months of ownership before an appraisal-based cash-out, which matters to BRRRR investors trying to recycle capital quickly.
For investors, the cash-out refi is the engine of portfolio scaling: force appreciation through renovation, refinance at the new value, pull the original capital out, and redeploy it while keeping the property and its cash flow. The discipline required is leaving enough margin, over-leveraging every property at the top of a market converts a resilient portfolio into a fragile one, since the new larger payment must still be covered by rent through vacancies and downturns.
Worked example
You bought a rental for $160,000 cash and spent $30,000 renovating it. It now appraises at $260,000, and a lender offers a 75% LTV cash-out refinance: a $195,000 loan. After about $6,000 in closing costs, you recover roughly $189,000, nearly your entire $190,000 investment, while keeping the tenant-occupied property and its remaining cash flow.
Frequently asked questions
- Is cash from a cash-out refinance taxable?
- No. Refinance proceeds are borrowed money, not income, so no tax is due when you receive them, one reason "refinance instead of sell" is a core wealth-building tactic. The flip side: interest deductibility on the new loan depends on how the proceeds are used (funds invested in a rental are generally deductible against that rental; personal-use proceeds generally are not), and the loan must still be repaid.
- How soon after buying can I do a cash-out refinance?
- Conventional loans generally require six months of ownership for a cash-out refinance based on appraised value (twelve months for some programs), though rules like delayed financing allow earlier cash-out for all-cash purchasers up to the original purchase price. DSCR and portfolio lenders often have shorter or more flexible seasoning. BRRRR investors should confirm seasoning rules before buying, not after renovating.
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