Can You Borrow More Than You Owe When Refinancing?

If you plan to refinance your house in the near future, don't wait until a lender tells you what you should do. Perform your own research and learn all you can about refinancing. One issue to investigate is whether a lender will allow you to borrow more than you currently owe when you refinance.

Refinancing Process

If you understand the refinancing process, it increases your chance of getting a favorable deal closed quickly. Contact several lenders to obtain rate quotes based on your updated financial profile, including credit history and credit score. After shopping around and settling on a new lender, you must fill out a loan application and provide documentation as required by the lender, including pay stubs, current mortgage statements, bank statements and tax returns. You must submit to an appraisal to determine your home's value. The process of refinancing is much like buying a house, except you do not have to coordinate with a seller, and it doesn’t usually take as long to close.

Borrowing More

When you refinance, you are not limited to borrowing the amount that you owe on the current mortgage loan. You can borrow additional funds to use for various other needs as long as the home is worth more than the loan balance. This is called a cash-out refinancing. Common uses for additional cash borrowed include paying off credit card debt, spending on home improvements and paying for college tuition.

Loan to Value Requirements

The exact requirements for qualifying to borrow more than what you owe when refinancing vary depending on the lender. However, in most cases the new total loan balance must not exceed 75 to 80 percent of the home's value. So if the home is worth $200,000, the current loan balance is $120,000 and the loan-to-value maximum is 80 percent, the cash out cannot exceed $40,000 for a total new loan of $160,000 (160,000 divided by 200,000 is 80 percent).


Though a lender may allow you to borrow more than you owe on the existing mortgage, the refinance is not guaranteed to benefit you financially over time. If the house's value drops, the home could end up underwater, meaning that you owe more on the mortgage than it is worth. Also, you must pay closing costs to refinance, so if you do not plan to stay in the home for an extended period, refinancing and taking cash out could cause you to lose money. Additionally, sometimes lenders charge higher interest rates for cash-out refinancing than a standard refinanced loan.