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Cash Out Refinance

Find out how you can release the equity in your home with a cash out refinance loan and compare with Savvy.

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, updated on August 8th, 2023       

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Cash out refinancing refers to either taking out a larger loan or applying for a new home loan using the existing equity in your property as security. You receive the additional loan money from the lender in cash. Savvy can help you compare loans from different lenders to make sure you get the best refinance deal available in Australia.

How does cash out refinancing work?

A cash out refinance means you take out a new home loan for a larger sum than you previously had, drawing on the equity built up in your home, and pocket the difference to use for other purposes.  If you do opt for a cash out mortgage, you’ll receive the additional amount of your loan in cash, which you could then use for several other purposes, including:

  • investing, including buying shares on the stock market
  • consolidating more expensive debt – for example, personal loans, car loans or credit card debt
  • purchasing a car, caravan, trailer or another recreational vehicle (RV) from a private source where cash is required
  • paying for home improvements or renovations
  • paying school fees, or funding further education through TAFE or university

How much home equity do I need for a cash out mortgage refinance?

Your lender will still require you to maintain a deposit equivalent to 20% of the value of your home, so you won’t be able to access 100% of your home equity.  A lender will calculate how much equity you need to refinance your home loan as 80% of the value of your property minus your home loan sum.  For example, if your home is worth $850,000, and your loan is for $665,000, the calculation would be:

Useable home equity = 80% of property value

$850,000 x 80% = $680,000

Then this sum minus your loan amount

$680,000 – $665,000 = $15,000

Therefore, in this example, your usable home equity is $15,000, which is the amount a lender would allow you to take as cash out if you applied for a cash out refinance.  The total amount of your loan would subsequently increase from $665,000 to $680,000.

How much does it cost to switch loans?

If you do choose to refinance your existing loan to take cash out with your mortgage, this may involve you having to pay discharge fees (also known as settlement costs) to close your existing loan and application or establishment fees to open your new one.  Mortgage discharge fees mostly range from $100 to $400, and loan establishment fees range from $200 to $700, so, in total, you could be charged anywhere up to around $1,100 to close your existing home loan and open another. 

However, these costs may be worth paying if you switch to one with a much lower cash out refinance rate, which could save you tens of thousands of dollars over the life of the loan.  For this reason, it’s very important to compare home loans to make sure you’re getting one with the lowest interest rate.  Savvy is a loan comparison specialist that Aussies have been trusting to provide comparison information for over a decade.  Use our handy home loan comparison calculator to compare the costs of a home loan.

Will a cash out refinance affect my credit score?

Yes, it could affect your credit score in several ways, depending on the reason you are refinancing.  This could occur:

  • if you’re refinancing to consolidate debt, your credit score could increase if you use cash out refinance money to pay off several smaller but more expensive debts, such as personal loans or credit cards
  • every time you apply for a loan, the lender will make an enquiry on your credit report (known as a hard enquiry), which may cause a temporary reduction in your credit score
  • as your former loan is closed and your new refinance loan repayments are received on time, this could increase your credit score again

Here’s more of your frequently asked questions about cash out refinance loans

Will I have to get a home valuation before my refinance cash out loan is approved?

Yes – most lenders would want their own independent valuer to give them an estimate of the value of your property before approving a cash out refinance, as your lender will treat this as if you were applying for your first mortgage.  Your lender should arrange this valuation at no cost to you.

What's the difference between a cash out refinancing loan and a top-up loan?

If you’re thinking of a cash out refinance, you’re looking at an entirely new loan which will replace your existing mortgage but will be for a higher amount than your original loan.  On the other hand, with a top-up loan, you retain your original loan and lender but increase the amount you borrow and/or the length of time you have to repay that money using your existing equity.  You may find that a top up loan is better for your situation if you’re happy with the interest and fees on your current loan, as you won’t have to pay any closing or opening fees to access your equity.

Do I have to use the same lender for my cash out refinance?

No – if you’re completely refinancing your home loan, the choice of lender is yours, with online lenders often offering the lowest possible cash out refinance rates.  However, if you apply for a top-up loan, you’re effectively keeping your original loan, so you’ll have to approach your existing lender.

Are there any limits as to what I can use the cash out for?

You may be asked by your lender to state the purpose for your cash out refinance and, if they approve your loan, they may ask for proof that you have used the cash out money for your stated purpose.  The reason you request cash out may influence if your loan application is approved, but it’s unlikely to prove the difference.  It goes without saying that you won’t be approved for a cash out refinance if you state you’re going to use the additional funds for gambling.

Will a cash out refinance cost me more in the long run?

Yes – it’s likely that a cash out refinance will cost you more, as you’re increasing the size of your home loan and possibly extending the time you have to pay off that loan.  For example, if you wish to borrow an additional $50,000, you may also wish to increase your loan term from 25 years to 30 years so your monthly repayments are still within a range you’re able to afford on your current income.  However, you’ll need to compare this additional cost with the benefits of either having a lower interest rate overall or paying off far more expensive debt such as personal loans or credit cards.

When I refinance, can I change the type of loan that I have?

Yes – for instance, you may take out a fixed interest rate loan instead of a variable rate loan or change your loan so you have access to additional loan features such as:

  • a loan offset account, which will reduce your overall interest rate by offsetting the principal amount you borrow so you pay less interest
  • the ability to make additional lump sum repayments to pay off your loan more quickly, and so reduce the interest you pay
  • a redraw facility, so you can make additional payments off your loan, but then redraw funds to give you access to cash in an emergency

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