How Much Does a Cash-Out Refinance Cost?

Cash-out refinances can be expensive. So your first job when considering one is whether the cost is worth the benefit.

The only way to get an accurate closing cost quote is to apply with a lender. But here’s more about what costs you can expect.

Cash-Out Refinance Closing Costs

Getting a cash-out refinance means paying closing costs just like when purchasing your home. For instance, appraisal, title escrow fees, county recording, and more. These costs may run 2% and 4% of the total loan amount.

We've compiled a list of expected closing costs, including how much they might be on a sample loan. However, actual expenses and amounts can vary considerably based on the:

• Amount you’re refinancing

• Your lender you’re using

• Third-party fees for your location

Below is an example of the charges you could expect, as well as how much they might cost, on a $350,000 cash-out refinance:

Actual loan costs aren’t the only expenses, though. You must pre-pay property taxes, insurance, and interest for the remainder of the month after closing.

However, these aren’t true costs of the refinance. You would pay them either way and you’ll get a refund from your current mortgage servicer for the approximate amount.

Excluding these two due-at-close escrow expenses (technically, you shouldn’t consider them closing costs), the total in this example would be $7,030. This equates to around 2% of the sample loan balance.

For a more comprehensive breakdown of these expenses, check out our conventional loan closing costs article.

Interest Rates: Cash-Out vs. No-Cash-Out Refinances

Cash-out rates are generally 0.25% to 0.50% higher than with a no-cash-out refinance, also referred to as a rate-and-term refinance. This higher interest allows lenders to compensate for the added risk of reducing the equity in your home.

However, many different variables go into determining your cash-out refinance rate.

Some of the biggest factors that impact your cash-out interest rates include your:

• Credit score

• Remaining home equity

• Property type being refinanced

For a more detailed analysis of how cash-out rates are calculated, take a look at our guide to interest rates for cash-out refinances.

Funding an Escrow Account for Taxes and Insurance

As part of the refinance process, you must fund an escrow account for property taxes and insurance premiums. These aren't technically closing costs, even though you pay them at closing.

The escrow funding process is straightforward when purchasing a home but can be a little more confusing when refinancing. That's because, in most cases, you've already funded your taxes and insurance in escrow with your current mortgage.

If you’re refinancing through the same lender, you may be able to transfer your escrow account to the new loan. But in most cases, your best option is to pay these escrow costs again and then wait a few weeks for your previous mortgage servicer to issue you a refund for a similar amount.

Rolling Escrow Costs Into Your Refinance

You can usually wrap these costs into your new loan, but doing so means paying long-term interest on the escrow amount. Most professionals recommend funding your escrow payments at closing and then reimbursing yourself with the refund check when it arrives.

Of course, if you’re trying to maximize the funds you receive from your cash-out refinance, it may make sense to wrap in the escrow payments and keep the refund check as part of your cashed-out equity.

Wrapping Escrow Costs and Paying Down the Balance With the Refund

Some homeowners wrap their escrow account into the refinance to reduce the amount due at closing. Then, once the refund check is deposited, they use the funds to pay down their new loan balance.

While this strategy could mitigate long-term financing costs, you’ll still be stuck with a higher monthly payment than if you had temporarily funded the escrow account yourself.

Closing Costs for FHA and VA Cash-Out Refinances

You may encounter additional closing costs if you're getting a cash-out refinance through the FHA or VA. While the expenses are usually offset by the lower interest rates available through these government-backed programs, they can still add a lot to refinance closing costs.

The most noteworthy are the FHA upfront mortgage insurance premium and the VA funding fee.

FHA Upfront Mortgage Insurance Premium (MIP)

With an FHA cash-out refinance, you must pay an upfront mortgage insurance premium that's equal to 1.75% of your loan total. Unlike conventional loans, which don't require mortgage insurance if you have at least 20% equity, all FHA loans require this closing cost, no matter your loan-to-value.

On a $350,000 FHA cash-out refinance, the upfront MIP would equate to an extra $6,125 due at closing.

However, if you’re using an FHA refinance to pay off an existing FHA loan that you’ve had for less than three years, you may qualify to have a portion of your original upfront premium refunded.

VA Funding Fee

Most borrowers eligible for a VA cash-out refinance must pay a VA funding fee of 3.3% of the loan balance. On a $350,000 VA refinance, the funding fee would equate to an extra $11,550 due at closing. Because it's a considerable expense, it's common for this fee to be wrapped into the mortgage.

Homeowners may be eligible for a reduced funding fee of 2.15% if they've never had a VA loan before, and specific borrowers (and surviving spouses) with service-related disabilities may qualify to have the fee waived altogether.

Is a Cash-Out Refinance Worth It?

Whether or not a cash-out refinance is worth it can depend on a variety of factors, including the:

• Balance of your current loan

• Amount you plan to withdraw

• Interest rate you qualify for

• Reasons for tapping into your equity

As a rule of thumb, it's probably only worth doing a cash-out refinance if you plan to withdraw at least $30,000 of equity. It wouldn't make sense to pay $7,000 in closing costs to cash out $10,000.

That is unless you can reduce your interest rate at the same time. It might even be worth refinancing for a 0.25% lower rate in some cases.

However, a minimum withdrawal of $50,000 is more practical for most homeowners considering a cash-out refinance.

If you're looking at a large cash-out, something above $100,000, closing costs will likely be a minor factor. That is unless you currently have a substantial loan balance.

Frequently Asked Questions About Cash-Out Refinance Costs

Here is a quick summary of some of the most frequently asked questions regarding cash-out refinance costs:

What Is the Average Cost of a Cash-Out Refinance?

Costs can vary based on your lender, location, and loan amount. But on average, you can anticipate paying 2% to 4% of your total loan in closing costs. You will also likely encounter interest rates between 0.25% and 0.50% higher than a simple rate-and-term refinance.

What Is the Minimum Amount of Equity That I Can Cash Out?

The minimum amount of equity you can withdraw with a cash-out refinance will vary by lender. Most will have minimum loan amounts. But in general, borrowers will want to consider taking out at least $50,000 ($30,000 in some situations) to compensate for refinancing costs. You probably wouldn't pay $10,000 in closing costs to cash out $15,000 of equity.

Can You Include Closing Costs in Your Refinance?

You may be able to include some (or all) of your closing costs and prepaid items in your refinance. This strategy could be beneficial if you need to maximize the amount you receive from your cash out, but it will cost you in the long run. Not only will your monthly payment be higher than if you paid the closing costs upfront, but you'll also be paying interest on the extra balance across the life of your mortgage.

Can I Get Equity Out of My Home Without Refinancing?

Homeowners who only need to access a small amount of equity may consider alternative options like home equity loans and lines of credit. These second mortgages are typically issued for much less than a standard refinance and incur smaller closing costs. However, they usually come with higher interest rates, which can be costly for someone borrowing a large amount.

How Much a Cash-Out Refinance Will Cost You

It can be challenging to estimate how much a cash-out refinance costs because there are so many variables to consider.

But by and large, you can plan to pay between 2% and 4% of your total refinanced loan. You’re also likely to pay a 0.25% to 0.50% higher interest rate compared to a no-cash-out refinance.

For a more detailed breakdown of the costs of a cash-out refinance in your particular situation, reach out to an experienced lender today.