Cash out refinancing accesses your home equity by increasing your existing loan, usually up to 80% LVR.
It can unlock large sums for investments or renovations but increases your overall debt and total interest paid.
Research new rates carefully and ensure you can afford higher repayments as your loan balance increases.
What is cash out refinancing?
Cash out refinancing is where you access the equity you've built in your home to refinance to a higher loan amount and then you take out the difference in cash.
Unlike in a standard refinance, you wouldn't apply for a loan to cover the amount remaining on your loan balance. You would apply for a new loan of a higher amount, which covers not only the cost of your existing loan but allows you to take out the rest in cash.
The amount you can apply for depends on the amount of equity you've built up, but your LVR would need to be below 80%.
Harrison buys an $800,000 property. Luckily, he has 20% of the property value - or $160,000 - available as a deposit, so his loan amount is $640,000.
Over the next few years he pays off another 20% of the loan. This means the equity he has in the property is now $320,000.
Let's say Harrison needs some money to put a deposit down on another property, he can apply to refinance his loan back to the higher amount of $640,000. The remaining balance of $480,000 which he had left on his existing loan is paid off, and he gets $160,000 paid to him in cash.
* This is a fictional, but realistic, example.
Pros and cons of cash out refinancing
Pros
It allows you access to larger sums of money which otherwise may take too long to save
You can also refinance to better interest rates and features
You can borrow the money without taking out any additional loans
Cons
You may end up paying a higher interest rate
Increasing your home loan debt will increase your monthly repayments and total amount you pay
Refinancing can come with costs to close out your existing loan and/or take out a new loan
What to consider before cash out refinancing
The biggest thing to consider with cash out refinancing is how you effectively go back to the beginning of repaying your home loan. After bringing down your home loan value, taking out the cash means you'll own less of the property and still have more to repay.
Refinancing in any form can also come with additional costs. Exiting loans and opening new loans can come with fees.
Although you have the potential to refinance to a better loan, you could also end up on a loan with a less competitive rate. If you refinance to another 30-year loan term, you'll end up paying much more in the long run.
Expert insight
"The term cash-out refinancing can sound confusing, but it can be a strategic way to unlock your property's equity for investments, renovations, or consolidating higher-interest debt. For property investors, it offers a chance to leverage existing assets to buy additional properties, potentially growing wealth without needing new, separate loans. But remember, this keeps you in debt longer and means paying more interest over time. If you're aiming to build a property portfolio, cash-out refinancing can be a smart move – just ensure it aligns with your long-term financial goals and that you're prepared for the risks."
What are the alternatives to cash out refinancing?
Equity loan (line of credit) - a separate loan which uses your equity as collateral and is added on to your existing home loan rather than a larger loan paying off your loan.
Loan increase - this increases the balance of your existing home loan. Your loan term stays the same, so your monthly payments will increase.
What is the difference between cash out refinancing and equity finance?
Cash out refinance
Your equity is used to increase your loan value rather than taking out another loan
Your loan term remains the same, so your monthly repayments increase
Equity finance
Your equity is used as collateral for another loan
You usually don't have to repay immediately
Who would use cash out refinancing?
Cash out refinancing is better used if you need larger sums of money. Withdrawing from an offset account or extra repayments would be better for a smaller amount.
Taking a cash out refinance loan could impact your credit score because you're increasing your debt. However, if you continue to meet your repayments on time, it should not affect it in the long run.
Cashing out with a refinance could increase your repayments though, so make sure you can still afford those before you apply. If you miss repayments that will affect your credit score.
How can I use the money from cash out refinancing?
There are no conditions or restrictions on how you can use the money from cash out refinancing. The amount left on your home loan gets paid towards your new loan, and the extra that you are cashing out is put into a bank account or offset account as you choose. You can then spend the money as you like.
Frequently asked questions
Lenders will typically let you borrow up to 80% of your home's value. This is still the case with cash out refinance, but it depends how much equity you have in your home.
To get a better interest rate on your cash out refinance loan you should first compare loan options to see what's on the market. You should also be able to get a better interest rate the higher equity you have in the property.
More lenders offer home loans to refinancers than they do to first home buyers, but when it comes to cash out refinancing you'll need to specifically check with your chosen bank or lender. For example, Suncorp Bank does have home loans for refinancers but it does not offer cash out refinancing.
For lenders which do offer cash out refinancing, it may not be specifically called out on their site. You may be better off speaking to a mortgage broker to seek out a lender which offers cash out refinancing.
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To make sure you get accurate and helpful information, this guide has been reviewed by
John Pidgeon, a member of Finder's
Editorial Review Board.
Rebecca Pike is Finder’s money editor, with over 7 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise and 7News, Today and 9News, as well as Sky News, Channel 10 and across radio and print. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines.
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