Refinance for more than you owe and use the difference to build.
A cash-out refinance replaces your current mortgage with a bigger one. You pay off the old loan and take the difference in cash for your project.
For years this was the default way to pay for a big remodel. Rates were low, and refinancing often lowered the payment at the same time. Right now it’s a much more situational decision, and the reason is simple.
You don’t just borrow the new money. You re-borrow everything.
A lender appraises your house and issues a new first mortgage for more than you currently owe. At closing, the new loan pays off the old one, and you receive the difference, minus closing costs.
Say your house is worth $400,000 and you owe $150,000. If you refinance into a $280,000 mortgage, the old $150,000 gets paid off and roughly $130,000 comes to you before costs.
You end up with one loan and one payment. The new loan has a new rate and usually a new term, often a fresh 30 years.
For a typical conventional loan on a single-family primary residence, both Fannie Mae and Freddie Mac cap a cash-out refinance at 80 percent of the home’s value. In other words, you have to leave at least 20 percent equity in the house. Government loan programs and individual lenders have their own limits.
In the example above, 80 percent of $400,000 is $320,000. That’s the most the new mortgage could be, before your income and credit are even considered.
This is the whole decision for a lot of people.
Many homeowners who bought or refinanced in 2020 through 2022 have rates in the 3 percent range. In mid-September 2026, Freddie Mac’s weekly survey had the average 30-year rate just under 7 percent. A cash-out refinance would move your entire balance, not just the project money, to today’s rate.
Run the example. Refinancing $150,000 of 3 percent debt up to 7 percent to get $130,000 of project money means paying more on the old money as well as the new. A home equity loan or HELOC leaves the cheap first mortgage alone and charges the higher rate only on what you borrow for the project.
Don’t look only at the cash you’re getting. Look at what happens to the whole mortgage afterward.
It flips the other way when your current rate is already near or above today’s rates, or when your remaining balance is small compared with what you need. Then one new loan at a first-mortgage rate can beat stacking a second loan at a higher one.
A refinance is a full mortgage closing. Bankrate puts typical closing costs at 2 to 5 percent of the new loan amount, so $6,000 to $15,000 on a $300,000 loan. That’s usually more than a home equity loan or HELOC costs to open, because you’re paying to originate the whole mortgage.
Those costs are often rolled into the new loan. That’s convenient, but you’ll be paying interest on them for years.
If you’re twelve years into a 30-year mortgage and refinance into a new 30-year loan, you’ve pushed the payoff date out twelve years. Your monthly payment might look manageable, but the total interest you pay over time can go up a lot.
You can ask for a shorter term, like 20 or 15 years. The payment is higher, but it keeps you closer to your original payoff date.
It’s your home on the line. A cash-out refinance is secured by your house, the same as the mortgage it replaces.
You get three days to cancel. For a refinance on your primary home, federal law generally lets you cancel until midnight of the third business day after closing. If you refinance with the lender you already have, that right typically only covers the new money, per the CFPB’s Regulation Z. Funds usually aren’t released until the window passes.
The tax side. Under IRS Publication 936, mortgage interest on the cash-out portion is generally deductible only if the money is used to buy, build or substantially improve the home, and only if you itemize. A tax preparer should confirm how it applies to you.
A good loan officer will run that comparison for you. If they won’t, that tells you something.
Is a cash-out refinance a good idea for a remodel?
It can be if your current rate is close to today’s rates or your balance is small. If you have a much lower rate now, a home equity loan or HELOC usually costs less because it leaves your first mortgage alone.
How much can I take out with a cash-out refinance?
On most conventional loans for a single-family primary residence, the new mortgage can’t exceed 80 percent of the home’s value. Subtract what you owe to find the rough maximum, before closing costs.
Does a cash-out refinance restart my mortgage?
Yes. It’s a new mortgage with a new rate and a new term. Choosing a shorter term can keep you closer to your original payoff date.
This page is general information, not financial advice. Smego Construction is not a lender, mortgage broker or financial advisor, and nothing here is a recommendation about your particular circumstances. Loan products, eligibility and terms change and vary by lender — confirm anything here with a qualified lender before making a decision.
Fifteen minutes on the phone. You’ll have a realistic range before we hang up — and if we’re not the right people for it, I’ll tell you.