JUMBO
Cash-out Refinance

A Jumbo Cash-Out Refinance is a refinancing option for homeowners with high-value properties that exceed conforming loan limits, allowing them to replace their existing mortgage with a new, larger one and access some of their home equity in cash. In 2024, the standard conforming loan limit for most areas is $726,200, but a jumbo loan is used for properties valued beyond this limit. The purpose of a jumbo cash-out refinance is to help homeowners tap into their home’s equity, providing a lump sum that can be used for various financial needs, such as home improvements, debt consolidation, or other large expenses.

How a Jumbo Cash-Out Refinance Works
A jumbo cash-out refinance replaces the original mortgage with a larger loan and disburses the cash difference to the borrower. The homeowner must meet stricter eligibility criteria due to the higher loan amount and increased risk to the lender, but the process is similar to other refinances.

For instance, suppose a homeowner has a $1.5 million home with an existing mortgage of $900,000. Through a jumbo cash-out refinance, they might refinance into a new loan of $1.2 million, netting $300,000 in cash (minus closing costs) while still maintaining an equity buffer of 20-30%.

Features of a Jumbo Cash-Out Refinance 

Loan Amount
Jumbo loans apply to properties with values above conforming limits, often exceeding $1 million.

Cash Access
Borrowers can access a portion of their home’s equity in cash, though most lenders set limits on the percentage, typically between 60% to 70% loan-to-value (LTV).

Higher Standards for Qualification
– Typically, a minimum score of 700 or higher is required.
– Reserves of 6-18 months of liquidable assets are required depending upon the loan size and the borrower’s credit profile.

Benefits
– Ideal for high-value homeowners who need significant liquidity for various financial goals.

– Combines your mortgage and other debts or necessary cash into one payment, which may be lower than alternative funding sources like personal loans.

– Possible Interest Rate Savings: If market rates are lower than your current mortgage, refinancing may result in interest savings on the new, larger loan.

Interest Rates
Jumbo loans often come with higher interest rates compared to conforming loans, reflecting the additional risk for lenders.

Closing Costs
Because the loan amount is larger, closing costs and fees are generally higher, which should be a consideration when doing a cost analysis.

Increased Borrower Guidelines
Stringent Requirements: Higher credit, income, and equity requirements can make qualifying challenging for some borrowers without substantial reserves.

A jumbo cash-out refinance can be an effective way to leverage equity in high-value properties for significant cash needs, but it’s essential to evaluate the costs, terms, and whether it aligns with your financial goals before moving forward. Consulting with a lender who specializes in jumbo loans can help determine if it’s the right solution for your circumstances.