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Best Cash-Out Refinance Lenders | December 2022

A cash-out refinance replaces your mortgage with a new loan for more money than what you owed. You receiver the difference as a lump-sum cash payment. Here is SuperMoney's list of the top cash-out refinances

A cash-out refinance can be a smart move when you want to reinvest the equity you've built in your home in other things of value, such as a home improvement project, a new business, or furthering your education. If you qualify for lower interest rates, it could even save you money on your current mortgage. 

It is important to compare multiple loan offers before choosing a cash-out refinance. Asking for just a few quotes can save you thousands of dollars in interest and closing costs.

Methodology

SuperMoney's list of the best cash-out refinances is based on the qualitative recommendations of our community members and the quantitative recommendations of our ranking algorithms. We analyzed more than 100 lenders and focused on lenders that provide competitive rates and terms.

Cash-out refinance alternatives

A cash-out mortgage refinance can be a great option if you have good credit and a low debt-to-income ratio. However, it is not for everyone. The good news is there are alternatives, such as shared equity agreements, HELOCs, and home equity loans.

Shared equity agreements

Shared equity agreements are probably the most flexible option. It is possible to qualify with a credit score as low as 500 and they don't have monthly payments. How is that possible? Well, instead of lending you money, shared equity investors give you cash for a slice of your home equity. This means they are easier to qualify for and require no additional debt.

Shared equity agreements are an attractive option for people who either don't qualify for a cash-out refinance or want to tap into their home equity without getting further into debt. Here is our list of the top-rated shared equity agreements.

Home Equity Line Of Credit

A home equity loan is a fixed-rate loan that gives the borrower the full loan amount in a single lump sum. It’s a revolving credit line backed by the equity you have in your home.

Home Equity Loan

A home equity line of credit (HELOC) supplies money as a pool of funds that you can draw from as needed. Home equity loans can be an inexpensive way to finance large purchases, such as home improvement projects or college tuition.

What is a cash-out refinance?

The term "refinance" can be a little misleading because it gives the impression that you're changing the rates or terms of the existing mortgage as you would with a loan modification. However, a cash-out refinance is a brand new mortgage loan that replaces your existing mortgage with a new home loan for more than you currently owe. You can spend the difference on home improvements, debt consolidation, or any other financial need.

How does a cash-out refinance work?

A cash-out refinance pays you the difference between your current mortgage balance and the balance of the new home loan. Typically, the cash-out refinance will have slightly higher interest rates because it's for a larger loan amount, but you may qualify for a better deal if mortgage rates have dropped or your credit score has improved.

To apply for a cash-out refinance, you will have to take most of the steps you went through with the initial mortgage. This includes working through the paperwork and paying the closing costs and fees. Closing fees usually range between 2 to 5 percent of the loan amount and your debt. The application process may be a little simpler and faster if you refinance with the same lender, but you still have to pay the closing fees.

Note that cash-out refinances typically require a credit score of at least 620 and a maximum loan to value ratio of 80%. The maximum debt to income ratio is usually around 50%. If you don't qualify for a cash-out refinance, consider a shared equity agreement.

What are the pros and cons of cash-out refinances?

A cash-out refinance can be a low-cost way to tap into your home equity, but it's not always a good idea. Here is a summary of the advantages and disadvantages you should consider when shopping for cash-out refinances.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks to consider when refinancing your mortgage.

Pros
  • In some cases, it can lower your interest rate.
  • Access to large loan amounts if you have the equity.
  • Allows you to convert an adjustable-rate mortgage to a fixed-rate (or vice-versa)
  • It gives you the ability to remove a cosigner from the loan.
  • Low-cost option for tapping into your home's equity.
Cons
  • Extending your loan term could cost you more money.
  • You could be denied if your credit or income has dropped.
  • High closing costs.

What about no-closing cost cash-out refinances?

With a no-closing cost refinance, you won't have to pay upfront closing costs. Unfortunately, that doesn't mean the fees are waived. Instead, they either get added to the loan amount or baked into the mortgage as higher interest rates.

How do I get started?

If you think a cash-out refinance is a good choice for you, get quotes from all the cash-out refinance lenders listed above.

It only takes a couple of minutes to find out if you prequalify and discover what rates and terms you can get. There are no strings attached, and it won't hurt your credit score.

ABOUT THE AUTHOR
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SuperMoney
SuperMoney is the most comprehensive financial services comparison site around. We have published hundreds of personal finance articles and provide detailed reviews on thousands of financial products and services. Our unbiased advice and free comparison tools help consumers make smart financial decisions based on hard data, not marketing gimmicks.