Refinancing for more than the existing balance, taking the difference as cash.
A cash-out refinance is a mortgage refinance where the new loan amount exceeds the existing loan balance, and the borrower receives the difference in cash at closing. Cash-out refi is the dominant equity recapture tool in real estate — used for portfolio expansion, capital improvements, and the "R" in BRRRR.
Cash-out refi is the way real estate investors recapture equity built through appreciation, principal paydown, and value-add improvements. A property purchased at $400k five years ago, now worth $580k with a $250k loan balance, has $330k of equity. A 75% LTV cash-out refi yields $435k of new loan — pays off the $250k existing balance and produces ~$175k cash to the borrower (after closing costs).
Max LTV on cash-out refi is universally lower than on purchase. Conventional cash-out caps at 75% (vs. 80% on purchase). DSCR cash-out caps at 75% (vs. 80% on purchase). Commercial cash-out is typically 70–75% LTV. The 5-point haircut reflects the lender's view that cash-out refis carry slightly more risk — the borrower is removing equity from the property, leaving thinner cushion.
Seasoning periods apply on most cash-out programs. Conventional requires 6 months of ownership before using the new appraised value (rather than purchase price). DSCR programs typically require 6 months. After 12 months of ownership, full appraised value is used unrestricted. The seasoning rules prevent borrowers from buying with cash, immediately appraising up, and cash-out refinancing at full new value.
Tax treatment is favorable. Cash from a refinance is not taxable income — it's borrowed money, which doesn't create tax. This is the structural advantage of cash-out refi over sale: a sale realizes capital gains and depreciation recapture (taxable), while a refi pulls out equivalent cash with zero tax. Investors use this strategically to access equity without triggering tax events.
| Property purchased | $220,000 |
| Rehab budget | $70,000 |
| All-in cost | $290,000 |
| Post-rehab appraised value | $395,000 |
| Cash-out refi at 75% LTV | $296,250 |
| Existing loan payoff | ($225,000) |
| Closing costs | ($7,500) |
| Net cash to borrower | $63,750 |
| Cash invested originally | $70,000 |
| Net equity remaining after refi | ~$99k |
Refinance into a new loan larger than the existing balance, receive the difference in cash at closing. Net cash ≈ new loan – old payoff – closing costs.
No — borrowed money is not taxable income. This is the structural advantage of cash-out refi over sale, which triggers capital gains and depreciation recapture.
Typically 75% on residential investment property (conventional and DSCR). 70–75% on commercial. Owner-occupied primary residence cash-out can go higher (80% on conventional, sometimes up to 80–85% on non-QM).
The minimum ownership period before the new appraised value can be used (vs. the original purchase price). Typically 6 months on DSCR and conventional. Some bridge programs have no seasoning requirement.
Cash-out increases the loan balance and produces cash to the borrower. Rate-and-term keeps the loan balance roughly the same — just changes the rate, term, or amortization. Rate-and-term refis are typically cheaper and have higher max LTV.
Matrix funds DSCR and bridge cash-out refis up to 75% LTV. Built for portfolio operators recycling equity through BRRRR and value-add cycles.
