Looking over different mortgage refinance rates, I have found some that are favorable in the 0.5-1.5 point range, but the upfront cost exceeds what I'm comfortable paying out of pocket.

Is possible to pay upfront costs (including costs for points) for a refinance strictly using cash-out from the refinance itself?

  • 1
    If you can, you'll want to make sure that the amount of interest you'd save by lowering the rate isn't offset by the extra interest you'll be paying on a higher principal.
    – chepner
    Commented Jan 4, 2022 at 21:58

1 Answer 1


A "cash-out" refinance is just borrowing more than you currently owe, and "buying points" is just prepaying interest upfront. How good a deal the points are depends on how long you plan to keep the mortgage. Typically the points have about a 5 to 10 year payback period, so you would need to keep the mortgage at least that long to make the points worth the upfront expense.

The actual math behind points is not that simple, though. They're priced based on the "present value" of the interest savings based on some discount factor which should be pretty close to the APR of the loan, otherwise it would be a bad deal either for you (and you wouldn't take it) or the bank (and they wouldn't offer it).

So I can't see where borrowing more just to prepay interest would be a significant savings overall. You're essentially borrowing more to pay interest upfront. So it's only a good deal if the effective interest rate of the points savings (which you'd have to calculate yourself) is significantly lower than the APR of the loan without points. In other words, the interest you pay on the extra borrowed amount would have to be less than the interest saved from the lower rate.

Also, cash-out mortgages tend to have a higher rate than pure refinances since a cash-out indicates a more urgent need for cash, so it's even more unlikely that you could come out ahead by buying points with a cash-out refinance.

  • I've run a variety of amortization scenarios for rates with no points, rates with points with no cash out (best deal of course), and rates with points with cash out (which in some scenarios, beat out the rates with no points), so it would be beneficial to go with one of the rates with points and cash out. My question is though, is possible to pay upfront costs (including costs for points) for a refinance strictly using cash-out from the refinance itself?
    – Soulis
    Commented Jan 4, 2022 at 22:12
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    It would almost certainly depend on the specific lender; you'll have to pick one and ask them.
    – chepner
    Commented Jan 4, 2022 at 22:57
  • 1
    I don't see why it would not be allowed, but it would depend on the bank. All of the cash in/out just cancels when you close, so it will just reduce your cash out by the cost of the point(s).
    – D Stanley
    Commented Jan 5, 2022 at 14:26

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