How to earn the best cash-out refinance rates

If you’re looking to complete home repairs or renovations, or simply want to consolidate debt, you might want to consider a cash-out refinance loan. There are many ways a homeowner can earn the best cash-out refinance rates to reduce interest charges against the newly refinanced loan.

A cash-out refinance loan works similar to traditional refinance options: You get a new loan that fully repays your outstanding mortgage so you retain just one mortgage bill, but it also allows you to take an additional amount as a lump-sum payment to use as you like.

Similar to home equity loans, cash-out refinance rates are attractive to homeowners because they typically offer lower interest rates compared to other credit types, like credit cards or personal loans. Cash-out refinance rates are also fixed through Discover, and won’t increase during the life of the loan.

If you’ve accumulated enough equity in your home, have strong measures of credit and income, and mortgage rates are competitive, you may want to consider a cash-out refinance. Find more below about how you can earn the best cash-out refinance rates.

Find your cash-out refinance rate range

To find your cash-out refinance rate range, Discover® offers free tools to help you decide how much cash you may be able to get and how much your monthly payment could be.

• Discover Cash-out Refinance Calculator: This calculator may help you decide if a cash-out refinance loan is right for you. Input the current market value of your home and any outstanding mortgage balance, and it can provide an estimated mortgage rate you may qualify for when refinancing.
• Discover Rate & Monthly Payment Calculator: Our easy-to-use monthly payment calculator will provide an estimate for your cash-out refinance rate and how much your payment could be each month. Input how much you want to borrow, how much your home is worth, your current mortgage balance, credit score, and location, and we'll do the rest.

Note: These estimates are intended for educational purposes. If you apply for a loan, additional information will be requested and these estimates could change.

5 ways to earn the best cash-out refinance rate for you

If you’re considering refinancing, there are things you can do now to earn the best cash-out refinance rate.

Improve your credit score and income

You can earn lower cash-out refinance rates for home equity products by increasing your income or improving your credit score.

Pay down debt

A cash-out refinance rate is also based on the current available equity in your home, which is the difference between what you owe on your mortgage and how much your home is currently worth.

Reducing your home mortgage debt will increase your equity, which can help earn lower rates. In general, reducing any debt improves your credit and improves your debt-to-income (DTI) ratio, which can also help in earning lower rates for your cash-out refinance.

Compare against home equity alternatives

Cash-out refinancing is just one attractive way to consolidate borrowing with an existing mortgage. You can also ask about a Discover® home equity loan, which may allow you to tap into your home’s equity without touching the rate on your primary mortgage.

Reduce your borrowing amount

Another option to earn the best cash-out refinance rate is to lower the amount you want to borrow. A smaller loan used in cash-out refinancing will directly impact the rates you earn.

Reduce term length

If you shorten the term length of your cash-out refinance, you’ll find that you can earn lower interest rates against the loan. Discover offers cash-out refinance terms of 10, 15, 20, and 30 years, so you can adjust your terms to find a rate and monthly payment that meets your budget. For example, if you borrowed $60,000 for a 20 year term at 8.99% APR, your fixed monthly payments would be $539.45.

How cash-out refinance rates compare with home equity loan rates

How do cash-out refinance rates compare with home equity loan rates? Generally speaking, the rates you’ll receive for similar borrowing through a cash-out refinance or a home equity loan will be similar.

Lenders typically give higher interest rates to loans with higher risk. If you have an existing mortgage and add a home equity loan to borrow funds, your home equity loan will be in second lien position. If a borrower defaults on their primary mortgage and home equity loan, the primary mortgage lender will be first in line to recoup their funds through a foreclosure, where the home equity lender will receive the proceeds after the mortgage lender. Given that higher risk, lenders typically set home equity loan rates higher than a comparable cash-out refinance.

A cash-out refinance that pays off your existing mortgage and allows for additional borrowing will be in first lien position. Loans in a first lien position, given their lower risk of depriving the lender in the case of a default, typically earn a lower rate than a comparable second lien position loan, like a home equity loan.

Of course, the actual rate you earn for a cash-out refinance or home equity loan will depend on a number of other factors, including credit history and income, your total amount of debt, and national indicators like the Federal Reserve’s funds rate.

Comparing cash-out refinancing vs. borrowing alternatives

When comparing cash-out refinance vs. other borrowing alternatives like Discover home equity loans, one of the main factors to help you determine what’s right for you is how much your monthly payment will be.

Our Discover Rate & Monthly Payment Calculator can help you determine how your loan might affect your financial situation and which product might be best for you.

Home equity loans

Compared with cash-out refinancing, home equity loans offer similar interest rates and borrowing limits based on your available equity. Both home equity loans and cash-out refinancing through Discover will feature fixed interest rates and flexible term lengths ranging from 10 to 30 years.

And, while a cash-out refinance packages your mortgage loan with additional borrowing into one monthly payment, adding a home equity loan to your existing mortgage will mean you will have two bills to pay each month.

Personal loans

When compared with cash-out refinancing, most personal loans will feature higher interest rates and lower borrowing limits. Because personal loans are not secured by your home’s equity, lenders will base your borrowing on your personal financial strengths, such as credit and income.

Personal loans can offer a wider range of terms (some as short as 3-year terms), but with lower borrowing and higher rates, you may find the cost of borrowing and the amount you can borrow will find cash-out refinance – or even home equity loans – as a better option when borrowing.

Credit cards

Credit card borrowing will have significantly higher interest rates than home equity options like cash-out refinancing and, as revolving credit, those rates will be regularly applied against your balance to potentially compound your debt.

Credit card limits are, like personal loans, based on your income and credit history, so they likely won’t offer the same levels of borrowing as cash-out refinance.