What is a Cash-Out Refinance and When to Use It

As a high-earning professional, you may have built significant equity in your home—and with it, the opportunity to turn that equity into working capital. Whether you're looking to fund a new business venture, invest in your practice, or pay down high-interest debt, a cash-out refinance might seem like a smart way to access funds. But is it the most efficient and secure choice?

In this guide, we explain how cash-out refinancing works, when it makes sense, and when an alternative financing option—like a personal loan tailored for professionals—may offer faster access, fewer risks, and greater long-term flexibility.

Understanding the Basics

A cash-out refinance is a type of mortgage refinancing that lets you tap into the equity you've built in your home by replacing your existing mortgage with a new, larger one. In this process, you receive the difference between your new mortgage and your current loan in cash, which you can then use for various expenses.

This differs from a traditional refinance, where the primary goal is to obtain a better interest rate or more favorable loan terms without borrowing additional funds.

Common reasons homeowners choose a cash-out refinance include:

• Paying off high-interest debt
• Funding home renovations or repairs
• Reinvesting in a growing business or starting a new venture
• Covering major expenses such as education, medical bills, or business investments

Key Takeaway: Cash-out refinancing converts home equity into immediate cash but involves replacing your current mortgage with a larger one.

How a Cash-Out Refinance Works

To qualify, you'll need to have built substantial equity—the difference between your home's current value and your remaining mortgage balance. This equity determines the cash you can access.

Lenders use a metric called the loan-to-value (LTV) ratio to calculate your new borrowing potential. Typically, most lenders allow you to borrow up to 80% of your home’s appraised value. This percentage can vary based on factors like your credit profile, property type, and overall financial health.

Example Scenario

Imagine your home is valued at $400,000, and you still owe $250,000 on your mortgage. With an 80% LTV cap, you could obtain a new mortgage up to $320,000 (80% of $400,000).

Here’s the breakdown:

• Pay off existing debt: You use $250,000 of the new mortgage to clear your current loan.
• Receive cash: This leaves $70,000 available in cash (before fees).

You can use this cash for almost any purpose—like paying off credit card debt, fixing up your home, growing your business, or funding significant expenses such as college tuition or medical bills. Remember, you will need to pay closing costs, which usually range from 2% to 5% of the loan amount, reducing the net cash available to you.

What Do Lenders Look For?

Since a cash-out refinance is a new mortgage, lenders conduct a thorough underwriting process to assess your financial stability. This process typically includes:

• Review of your credit score: Most lenders require a minimum score of 620, though a score of 700 or higher may secure better rates.
• Stable income and employment verification: Lenders check W-2s, pay stubs, or tax returns to ensure you have a steady income. This is especially important if you are self-employed or run your own business.
• A low debt-to-income (DTI) ratio: Lenders typically prefer a DTI below 43%, meaning your total monthly debt payments, including the new mortgage, should not exceed 43% of your gross monthly income.
• A current home appraisal: A licensed appraiser evaluates your property to establish its current market value, which in turn determines the amount of equity you can access.

Key Takeaway: Lenders assess multiple factors—including credit score, income stability, DTI, and property value—to determine if you qualify for a cash-out refinance.

Closing Costs and Timeline

Like any mortgage, cash-out refinancing incurs closing costs. These may include lender fees, appraisal fees, title insurance, and other expenses—typically amounting to 2% to 5% of the total loan amount. These fees can reduce the net cash you receive.

The entire process generally takes between 30 to 45 days, depending on the lender’s process and how quickly you can provide the required documentation.

A cash-out refinance can be a powerful tool, but it comes with both benefits and trade-offs. Here’s what to consider:

Pros

• Lower interest rates: Mortgage rates tend to be lower than those of unsecured personal loans or credit cards, though this can vary based on market conditions and your credit profile.
• Potential tax benefits: If you use the funds for home improvements, you might be eligible to deduct the mortgage interest—consult your tax advisor for specifics.
• Longer repayment terms: Spreading payments over 15 to 30 years can make monthly costs more manageable.

Cons

• Risk of foreclosure: Since your home secures the loan, failure to repay can put your property at risk
• Closing costs: Paying 2–5% of the loan amount in fees can diminish the amount of cash you actually receive.
• Restarting the mortgage clock: Taking on a new mortgage may extend your debt horizon significantly.
• Longer debt horizon: Even with lower monthly payments, a prolonged repayment period may result in higher overall interest costs.

A cash-out refinance gives you a large sum of money—often tens or even hundreds of thousands of dollars—making it a popular choice for funding major financial goals. Here are some common uses:

Home Renovations

Investing in your home can boost its value and functionality. Typical projects include:

• Major kitchen or bathroom remodels
• Room additions like in-law suites, home offices, or extra bedrooms
• Roof, window, or siding replacements
• Upgrading to energy-efficient HVAC systems
• Adding outdoor spaces like patios, decks, or landscaping features
• Making structural repairs or updating older homes to meet current codes

Debt Consolidation

Using cash to pay off high-interest debts—like credit card bills, personal loans, or medical expenses—can simplify your finances by consolidating them into a single, lower-interest payment. Benefits include:

• Reduced monthly payments
• Simplified debt management with one due date
• Potential interest savings over time

However, keep in mind that converting unsecured debt into a secured mortgage increases the risk if your financial situation changes.

Key Takeaway: Whether renovating or consolidating debt, carefully evaluate your long-term goals before borrowing against your home equity.

The Risk of Using Your Home as Collateral

Although consolidating debt with a cash-out refinance may lower your interest rate, it also means your unsecured debt becomes tied to your home. In a downturn or if you face financial hardship, you risk falling into negative equity or even foreclosure.

Why Consider a Personal Loan Instead?

For professionals who want to consolidate debt without risking their home, a personal loan offers notable advantages:

• No collateral required: A personal loan is unsecured, so you don’t have to put your home or other assets on the line. This preserves your home equity while reducing your overall risk.
• Fixed rates and terms: Personal loans have predictable monthly payments and set repayment periods (typically 3 to 7 years), making budgeting straightforward and avoiding a long-term commitment.
• Fast funding: With less paperwork and no need for a home appraisal or closing process, personal loans can be approved and disbursed in just a few days—ideal for time-sensitive financial needs.

When a Personal Loan Makes More Sense

A personal loan may be the right choice if:

• You want to preserve your home equity for future investments or emergencies.
• You prefer a faster process and shorter repayment period with fewer fees and no closing costs.
• You need flexibility and a tailored loan structure.

When it comes to consolidating debt, time, flexibility, and peace of mind matter—especially for high-earning professionals with demanding schedules. BHG’s personal loan is designed with these needs in mind, providing a smarter, faster way to manage your finances without affecting your home equity.

High Loan Amounts and Flexible Terms

BHG offers personal loans up to $250,000,¹ giving you access to the capital you need to consolidate debt, simplify your payments, and control your cash flow. With customized repayment terms,¹ you choose a plan that aligns with your priorities—whether that means lower monthly payments or a quicker payoff.

Built for High-Income Earners

BHG’s personal loan is tailored specifically for professionals and high earners with strong credit profiles and stable incomes. Unlike a cash-out refinance, your borrowing power is not constrained by your home’s equity or current real estate market conditions. This approach gives you greater flexibility and easier access to funds.²

Fast Approval and Funding

BHG values your time. Their streamlined process makes it simple to move forward:

• No impact on your credit score to apply or estimate payment.³
• Complete a simple application with support from a dedicated loan specialist.
• Receive funds quickly—in as few as 5 business days.²

Key takeaway: BHG’s personal loan combines high borrowing potential with speed and flexibility,² making it an ideal choice for professionals who want to consolidate debt and manage their finances efficiently.

Questions to Ask Before Choosing

Before deciding between a cash-out refinance and a personal loan, take a moment to assess your overall financial goals and risk tolerance. Ask yourself:

• Am I comfortable using my home as collateral? With a cash-out refinance, your home secures the loan. If financial difficulties arise, your property could be at risk. Evaluate your stability and determine if you’re comfortable with this exposure.
• How quickly do I need the funds? Cash-out refinancing can take 30 to 45 days due to appraisals and underwriting. If you need funds urgently, a personal loan—often approved in just a few days—might be a better option.
• Do I plan to refinance or sell my home soon? If you anticipate selling your home or refinancing again in the near future, adding a new mortgage may complicate your plans. Consider how a long-term loan might affect your future real estate decisions.
• What’s more important: the lower interest rate or avoiding long-term debt? While cash-out refinancing might offer lower interest rates, it also means committing to debt over a longer period. Decide whether securing a low rate outweighs the benefits of a shorter, more manageable debt horizon.

Cash-Out Refinancing Has Its Place—But So Does Smart Borrowing

Both cash-out refinancing and personal loans have their places in a well-rounded financial strategy. If your goal is to fund home improvements, a cash-out refinance can be a smart option. However, for debt consolidation—especially if you want to preserve your home equity—a personal loan is often a safer, simpler solution.

At BHG, our personal loans are designed with high-income professionals in mind, offering flexible, fast funding with a streamlined process that reduces risk and complexity.

Ready to Take the Next Step?

See your BHG personal loan offers with no impact to your credit score.³ Check your rate now.