How does a cash-out refinance work?
A cash-out refinance pays off your current mortgage with a new, larger one, and you receive the difference in cash at closing, minus closing costs. You end up with one loan, at a new rate and term. A home equity loan or HELOC instead adds a second loan and leaves your first mortgage alone.
It's one of three common ways to borrow against your home. The CFPB (opens in a new tab) describes the other two: a home equity loan (a lump sum, repaid in set installments, on top of your mortgage) and a HELOC (a line of credit you draw on as needed).
| Topic | Cash-out refinance | Home equity loan | HELOC |
|---|---|---|---|
| Your current mortgage | Replaced | Stays in place | Stays in place |
| How you get the money | Lump sum at closing | Lump sum at closing | Draw as you need it |
| Loans on the home afterwards | One | Two | Two |
| Often considered when | Current rates are close to or below your rate | Your first-mortgage rate is low and you need a set amount | Costs come in stages, like a rebuild |
How long do I have to own my home first?
For a conventional loan sold to Fannie Mae, the mortgage you're paying off generally has to be at least 12 months old, and at least one borrower has to have been on title for six months. Inherited homes and homes awarded in a divorce are exceptions to the title wait.
Those are Fannie Mae's seasoning rules (opens in a new tab). Time the home was held in an LLC or a revocable trust can count toward the six months if you control the entity or are the trust's primary beneficiary — common for Maui families who hold property in a trust.
Bought with cash in the last six months? A separate rule, delayed financing, can let you borrow back what you put in, up to your documented investment plus financed closing costs.
How much equity can I take out?
It depends on the loan program, how many units the home has and whether you live there. Each program caps the new loan at a share of the appraised value, and the appraisal, not the tax assessment or an online estimate, sets that value. Loans above your county's conforming limit follow jumbo rules.
Fannie Mae publishes its caps in its eligibility matrix; FHA and VA set their own. Ask which cap applies to your home before you pay for an appraisal.
Loan size matters too. For 2026, FHFA (opens in a new tab) set Hawaiʻi's one-unit baseline conforming limit at $1,249,125, and some higher-cost counties sit above it. A new loan over your county's limit is a jumbo loan, with its own rules.
What if my home has an ʻohana unit?
A permitted ʻohana or accessory unit can add value, but a home with a separate, rentable unit may be treated as a two-unit property. Two-unit homes can have different equity caps and appraisal rules, so tell your loan officer about the unit, and whether it's rented, before you apply.
- Have the county permit for the ʻohana or accessory unit handy — unpermitted space is hard to count.
- Tell your loan officer at the start whether the unit is rented and how; that can change which program fits.
- If the unit was built after you bought, the appraisal is where that work shows up in your value.
Can I change my mind after closing?
Yes. When you refinance your principal home, federal law generally gives you until midnight of the third business day after closing to cancel. If you refinance with the same lender, the right covers only the new money above what you owed. Lenders hold the cash until that window ends.
That's the right of rescission in Regulation Z § 1026.23 (opens in a new tab). It's why your cash usually arrives a few days after you sign rather than the same day — plan any contractor deposit with that in mind.
Is a cash-out refinance worth it?
It can be, if today's rates are close to yours or the cash replaces costlier debt. If your current rate is low, a home equity loan or HELOC may cost less overall, because a cash-out refinance resets the rate on your whole balance, not just the new money.
Some people use cash-out to pay off credit cards or a car loan and fold everything into one smaller payment. That can help with monthly cash flow, but it spreads short-term debt over a long mortgage term. By refinancing your existing loan, your total finance charges may be higher over the life of the loan.
A refinance doesn't transfer your home. Hawaiʻi's Department of Taxation lists documents given to secure a debt (opens in a new tab) — which is what a mortgage is — among those that don't need a conveyance tax exemption form. Your Loan Estimate lists the closing costs you would pay.
More on this: Refinance
