A cash-out refinance replaces your current mortgage with a larger one and pays you the difference at closing. This guide covers the equity limits by loan type, what sets the rate, the closing costs, and DC's recordation-tax exemption on residential refinances.
How a cash-out refinance works
A cash-out refinance replaces your current mortgage with a new, larger loan. You receive the difference between your existing balance and the new loan amount as cash at closing.
Illustrative example:
- Home value: $650,000
- Current mortgage balance: $380,000
- New loan at 80% LTV: $520,000
- Cash to you: $140,000 (minus closing costs)
The new loan is a first mortgage that pays off your old one, and the amount above the old balance is paid to you in cash. A cash-out refinance is a single first mortgage; a home equity loan or HELOC is a separate second lien.
Cash-out refinance limits by loan type
Each loan program sets its own limit on how much equity you can take out:
Conventional cash-out refinance
- Maximum 80% loan-to-value (LTV)
- Must retain at least 20% equity after the refinance
- Pricing improves with credit score; the top conforming tier starts at 780
- Available for primary residences, second homes, and investment properties (lower LTV caps apply to second homes and investment properties)
FHA cash-out refinance
- Maximum 80% LTV
- Lower minimum credit score than conventional (lenders set their own overlays above the FHA floor)
- Requires FHA mortgage insurance premium (MIP)
- Primary residence only
VA cash-out refinance
- Up to 100% LTV under VA rules; an individual lender can set a lower maximum, such as 90%
- No monthly mortgage insurance, but a VA funding fee applies unless you're exempt
- Available to eligible veterans, active duty, and surviving spouses
What sets the rate on a cash-out refinance
Cash-out refinances carry agency pricing adjustments that rate-and-term refinances don't, so the rate or points on a cash-out refinance are higher than on a rate-and-term refinance for the same borrower. Five factors set the rate:
- Loan-to-value ratio: Lower LTV means lower risk and better rates
- Credit score: the top conforming pricing tier starts at 780; adjustments step up below that, with the steepest steps under 680
- Property type: Agency adjustments price single-family homes better than condos or multi-units
- Occupancy: Primary residence rates are lower than investment property rates
- Loan amount: Jumbo loans (above DC's 2026 conforming ceiling of $1,249,125) price differently. Loans between the $832,750 national baseline and that ceiling are high-balance conforming
DC recordation tax on a cash-out refinance: $0 with ROD Form 21
DC fully exempts residential refinance deeds of trust from recordation tax, including the entire loan on a cash-out refinance, for residential property with 5 or fewer dwelling units. The exemption is claimed with a one-page notarized Security Affidavit (ROD Form 21) recorded with your deed of trust (D.C. Code § 42-1102(21); OTR Tax Notice 2023-04). Some lenders' fee estimates still tax the full amount, so check the recordation line on any estimate you receive.
Example: On a $520,000 cash-out refinance, recordation tax is $0 with the affidavit. Taxed at 1.45% on the full amount, the tax would be $7,540.
Your settlement agent files the affidavit at closing, and District Mortgage puts it on the closing checklist. Without the affidavit, the fallback rule (D.C. Code § 42-1103(a)(3)(A); OTR Notice 2023-04) taxes only the new money, at 1.1% or 1.45% depending on amount.
DC cash-out refinance closing costs
Costs on a DC cash-out refinance:
| Cost | Range |
|---|---|
| Origination / broker compensation | Disclosed on your Loan Estimate; can be lender-paid |
| Appraisal | $450-$650 |
| Title search and insurance | $1,000-$2,500 |
| Recording fees | $50-$200 |
| DC recordation tax | $0 on residential refis (with Security Affidavit) |
| Credit report | $30-$75 |
| Flood certification | $15-$25 |
Total closing costs vary with loan size and title fees; your Loan Estimate will itemize them.
Uses for cash-out refinance funds
Home improvements
Budget a renovation against what renovated houses sell for in your neighborhood, rather than assuming the work returns its full cost. The price-per-square-foot explorer shows what renovated houses sell for against houses that need some TLC in each DC neighborhood.
Debt consolidation
Replacing credit-card balances with mortgage debt lowers the rate on that balance and leaves one payment instead of several. Two cautions: stretching the balance over a mortgage term can raise total interest paid even at a lower rate, and unsecured debt becomes debt secured by your home. Your loan officer runs both numbers before recommending a consolidation.
Investment
Cash-out funds can go toward an investment property. Your home then secures the money used for the investment, so the rental income needs to cover the investment property's own costs.
How to calculate the break-even on a cash-out refinance
Before committing to a cash-out refinance, calculate your break-even point:
- Add up all closing costs (recordation tax should be $0 on a residential DC refi)
- Compare your new monthly payment to your current payment
- Factor in the value of the cash you're receiving
- Count the months until the benefits exceed the costs; the refinance break-even tool runs this for you
If the cash pays off debt with a higher rate than the new mortgage, the break-even comes sooner. If the new mortgage rate is higher than your existing mortgage rate, the break-even can take several years.
Reasons not to do a cash-out refinance
- You have a rate significantly below current market rates and don't want to give it up
- You plan to sell your home within 2-3 years
- You'd be left with less than 20% equity (conventional) after the refinance
- The funds would go toward depreciating assets or discretionary spending
- You're already carrying a high debt-to-income ratio
Next steps
Start with an estimate of your home's current value and your remaining mortgage balance. Your available equity is the value minus the balance, and 80% of the value minus the balance is the most a conventional or FHA cash-out refinance can pay you before closing costs.
See how a DC cash-out refinance works, see today's rates, or run a refinance analysis in two minutes with no credit pull.