Your Home as ATM: Why Cash-Outs Add $42,000 in Interest, Hitting Vulnerable Families the Hardest

Homeowners desperate for cash are increasingly treating their properties like ATMs, tapping into near-record levels of home equity through refinancing deals that could cost them tens of thousands in additional interest while eroding their long-term financial security.

While the refinance market has shifted markedly in recent months—rate-and-term loans now outpacing cash-outs for the first time in three years, according to the November 2025 Mortgage Monitor via ICE Mortgage Technology—the risks remain especially acute for the most vulnerable borrowers. Mortgage holders entered the fourth quarter with £12.95 trillion ($17.3 trillion) in home equity, including £8.38 trillion ($11.2 trillion) in tappable equity, with the average homeowner having £152,810 ($204,000) available to borrow.

The Hidden $42,000 Cost

The true cost of treating your home as an ATM becomes clearer over time. A 2023 study by the Centre for Responsible Lending and the American Enterprise Institute Housing Center remains the most comprehensive analysis on these costs. Their research found that a typical cash-out refinance by a borrower with an FHA or VA mortgage provided around £27,000 ($36,000) in cash but led to an additional £31,460 ($42,000) in interest on the existing mortgage balance over the first seven years alone. This calculation excludes interest on the new cash itself and closing costs.

With current cash-out refinance rates hovering between 6.5% and 6.75%, according to Bankrate, these costs are highly relevant. Cash-out rates are usually 0.25 to 0.5 percentage points higher than rate-and-term refinances, adding to the financial burden for borrowers who cannot qualify for cheaper alternatives.

The mechanics are straightforward but can be devastating. When homeowners refinance their entire mortgage to access cash, they replace their existing rate with a new, often higher one, which applies to the full balance.

Why Lower-Income Families Bear the Brunt

The data reveals a troubling pattern that persists despite broader market improvements. The Centre for Responsible Lending found that FHA cash-out refinances disproportionately reach financially vulnerable borrowers, including those with lower credit scores and residents in neighbourhoods with higher proportions of Black residents.

According to HMDA data, VA cash-out refinances totalled 71,394 in 2024—around 6,000 per month—while FHA volumes remain significant among vulnerable groups, according to a 2023 analysis. This amounts to over 150,000 FHA/VA cash-outs annually at previous rates. These borrowers are often the ones least able to bear the burden of long-term interest payments.

'The recent easing in mortgage rates has begun to open the refinance window for many borrowers, particularly those who originated loans in the past two years,' said Andy Walden, Head of Mortgage and Housing Market Research at ICE. 'At the same time, homeowners still hold near-record amounts of tappable equity, and the cost to access that equity continues to improve.'

A Better Option Most Cannot Access

In today's rate environment, second-lien home equity loans are a far more advantageous option. Borrowers typically retain their lower initial interest rate on most of their debt because the higher interest rate only applies to the additional funds borrowed, rather than the entire mortgage.

According to the Centre for Responsible Lending, a typical FHA or VA borrower who completed a cash-out refinance would have gained £31,460 ($42,000) more in home equity and paid £28,460 ($38,000) less in total interest if they had instead taken out a 10-year home equity loan. There would also have been three to four times fewer closing expenses.

Availability remains a major obstacle. Many mortgage lenders seem much less willing to offer home equity loans, especially to borrowers with lower credit scores who need them most, even though they are prepared to originate government-backed cash-out refinances.

What This Means for Homeowners

For families already struggling with high nflationand low wages, taking out cash today might provide short-term relief but could severely compromise their financial security in the long run.

Before proceeding with a cash-out refinance, homeowners should carefully consider how much interest they will pay over the life of the loan. It's worth exploring whether home equity loans or lines of credit might be a better, more affordable alternative.

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