US homeowners are sitting on a mountain of housing wealth, and more are starting to cash it out. The average homeowner now has nearly $300K in equity, while cash-out refinancings are up 13% year-over-year and could make up more than 40% of all refinancings in 2026.

The pitch is simple: turn home equity into cash at rates well below most credit cards. But that cheaper debt comes with a tradeoff, because the house itself is on the line.

What you can actually pull out

The math starts with your home's appraised value. Lenders typically cap the new loan at 80% of that value, which means you must leave 20% of your equity untouched.

On a $600K home with a $300K remaining balance, that works out to a maximum cash withdrawal of $180K (before closing costs).

Closing costs run 2% to 6% of the loan amount, or roughly $6K to $15K on a $300K loan. You can roll them into the new loan instead of paying at closing, but that means paying interest on those costs for the life of the loan.

Rates on cash-out refis also run slightly higher than standard refinances, typically a quarter to half a percentage point more. The average 30-year fixed cash-out rate as of early August was 6.91%, versus 12.41% for a personal loan.

The break-even test you need to run

Refinancing resets your mortgage clock. If you're years into a 30-year loan, rolling your balance into a new 30-year term means paying interest longer on what you already owe. A lower monthly payment isn't the same as a lower total cost.

The break-even formula is simple: divide total closing costs by your monthly savings. If closing costs are $8K and you save $150 a month, you break even in roughly 53 months. If you plan to move before then, the refinance costs you money rather than saving it.

Your debt-to-income ratio also matters. Lenders generally require it stays at 45% or below with the new payment included. On an $85K annual salary, that's a maximum of $3.19K per month toward all debt. Factor that ceiling in before calculating how much to pull out.

When a HELOC beats a cash-out refi

If your current rate is below 6%, a cash-out refi forces you to replace that rate with today's market rate on your entire balance — not just the amount you're withdrawing. That's a costly trade on a large mortgage.

A home equity line of credit leaves your existing mortgage untouched. It's a revolving line tied to the prime rate, which means it's variable, but you only pay interest on what you draw. For smaller or more targeted needs, that structure is often cheaper.

A home equity loan is another second-mortgage option. It's fixed-rate, paid as a lump sum, and doesn't require restructuring your primary mortgage. For borrowers who don't need to overhaul their loan terms, it can be the more practical path.

The use of the cash also drives the decision. Renovations that add resale value, or paying off high-interest debt permanently, hold up over time. Vacations, cars, or debt consolidation without changing spending habits convert 30 years of home equity into short-term expenses.

Lenders won't stop you but the math on discretionary spending rarely works in the borrower's favor.