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15-Year Cash-Out Refinance: A Good Idea?

Should you get a 15-year cash-out refinance?

A cash-out refinance allows you to accomplish many goals at once, including

  • Converting home equity into cash

  • Lowering your rate

  • Consolidating debt

  • Changing the term of your loan

While it’s not commonly done, you can convert your 30-year fixed into a 25-, 20-, 15-, or even 10-year fixed mortgage while taking cash out. Here’s what to consider.

Tap into Equity Without “Starting Over”

Most people refinance from one 30-year fixed to another.

In most cases this is fine, but it can be costly if you’re more than a few years into your loan.

Most of your payment goes toward interest during the first years. With a $350,000 loan at 6%, you pay only $25,000 of principal by year five.

If you refinance five years into your loan, you “start over.” Your principal reduction returns to miniscule levels each month.

You’re wise to look into a shorter-term loan when you are shopping for a cash-out refinance. With that same $350,000 loan, you pay off $85,000 in principal in five years.

Loan Type

Principal Paid At…*

30-Year Fixed

20-Year Fixed

15-Year Fixed

Year 3

$14,000

$31,000

$49,000

Year 5

$25,000

$54,000

$85,000

Year 10

$58,000

$125,000

$199,000

*Assumes $350,000 mortgage at 6%. Figures rounded.

The other advantages to a 15-year loan are:

  • Paying off the loan faster

  • Paying less interest over the life of the loan

  • Lower rates

But what are the drawbacks?

15-Year Cash-Out Refinance Drawbacks

This strategy isn’t without risks.

Less Flexibility

A 15-year loan comes with a substantially higher payment: over $700 more per month versus a 30-year, $350,000 mortgage.

If you experience a loss in income, you still must pay the higher amount. With a 30-year fixed, you can elect to pay more each month (essentially making it a 15-year loan) but you don’t have to.

Opportunity Cost

Some financial experts suggest investing extra funds rather than paying off real estate. You can't access home equity without selling the home or refinancing, both of which require substantial fees. A future cash-out refinance might be avoided if you keep funds liquid.

Tax Implications

Paying down your mortgage means less interest paid each month, lowering your potential tax deduction each year.

15-Year Refinance Rates

Cash-out refinance rates are higher than purchase or no-cash refinance ones. But you can mitigate some of that increase by taking a 15-year loan.

According to Optimal Blue, a mortgage software company, 15-year mortgages in its system averaged as much as 0.80% lower rates than 30-year loans.

Other factors that help you get the best 15-year cash-out refinance rates are:

Credit score: Borrowers with a 720 or higher credit score get the best rates.

Remaining equity: Leave 30% or more equity in the home after the cash-out refinance.

Home type: A 1-unit single-family primary residence is the cheapest to finance. Second homes, investment properties, condos, and 2-4 unit properties require higher rates.

Loan amounts less than the standard conventional loan limit will require the lowest financing costs, though larger cash-out refinances are available in some locations.

Related:
How To Qualify For a Cash-Out Refinance
Best Uses For a Cash-Out Refinance

15-Year Cash-Out Refi: Is It Right For You?

It’s worth speaking to a financial advisor and tax professional before making the leap into a 15-year mortgage, whether that’s a cash-out loan or standard refinance.

If it’s the right choice for you, shop lenders to see which one will give you the lowest rate and fees.


About The Author:

Tim Lucas began his mortgage career in 2001 at Washington Mutual, reviewing wholesale loan files submitted by mortgage brokers. In the mid-2000s, he transitioned to retail lending at M&T Bank as a Mortgage Loan Processor, working with a wide range of borrowers: first-time buyers, investors using now-notorious "option ARMs" and jumbo buyers financing $1–5 million homes.

Tim later launched his own loan processing company while originating loans for his own clients, mainly FHA and USDA loans for first-time buyers. When the 2008 housing crash hit, he pivoted to assisting a prominent Loan Officer at Seattle Mortgage and Golf Savings Bank. He eventually became a Mortgage Processing Supervisor at Mortgage Advisory Group. There, he earned a reputation as a solutions-oriented processor, known for solving complex loan scenarios and uncovering obscure guidelines to help clients get approved.

In 2013, after more than a decade in lending, Tim moved into mortgage education—creating trusted content for sites like MyMortgageInsider.com and TheMortgageReports.com. Today, he blends 10+ years of hands-on mortgage experience with another decade in consumer education at Three Creeks Media, where he leads MortgageResearch.com. Tim is also a licensed Loan Originator (NMLS #118763).

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