Cash Out Refinance Calculator

What Is a Cash-Out Refinance?

A cash-out refinance replaces your existing mortgage with a new, larger loan and gives you the difference in cash. Enter your home value, current mortgage balance, desired cash-out amount, and the new interest rate in the calculator above. It shows the new loan amount, loan-to-value ratio, new monthly payment, and the cash you receive. This option lets you access home equity without selling or taking a separate second loan, but it increases your mortgage balance and resets the amortization clock.

Cash-Out Refinance Example

Home value: $450,000. Current mortgage: $250,000 at 4.5% with 22 years remaining (payment: $1,580). Cash-out amount: $60,000. New loan: $310,000 at 6.5% for 30 years (payment: $1,959). The $379/month payment increase funds $60,000 in cash. However, the total cost analysis tells a different story: the new loan generates $395,276 in total interest over 30 years versus $147,000 remaining on the old loan. The $60,000 cash effectively costs $248,276 in additional interest. This steep price makes the intended use of the cash critically important in determining whether the refinance makes financial sense.

When Does Cash-Out Refinancing Make Sense?

Home improvements that increase property value: a $60,000 renovation adding $80,000 in value creates equity beyond the borrowing cost. High-interest debt consolidation: replacing $60,000 in credit card debt at 22% APR with a 6.5% mortgage saves approximately $9,300 per year in interest, even after accounting for the refinance closing costs. Funding a business investment with a projected return exceeding the mortgage rate. Situations where the new mortgage rate is close to or below the current rate, minimizing the interest rate penalty. Cash-out refinancing rarely makes sense for discretionary spending, vacations, or depreciating purchases where the long-term interest cost dwarfs the short-term benefit.

LTV Requirements and Limits

Most conventional cash-out refinance programs limit the new loan to 80% of home value. A $400,000 home with a $200,000 mortgage: maximum new loan = $320,000, maximum cash-out = $120,000. VA cash-out refinances allow up to 100% LTV for eligible veterans. FHA cash-out refinances cap at 80% LTV. Jumbo cash-out programs may restrict to 70-75% LTV. The LTV limit protects both the lender (ensuring sufficient equity remains as collateral) and the borrower (preventing over-leveraging that creates underwater risk if home values decline).

Closing Costs and Breakeven Analysis

Cash-out refinance closing costs run 2-5% of the new loan amount ($6,200-$15,500 on a $310,000 loan). These costs are often rolled into the loan, reducing the net cash received. If you need $60,000 and closing costs are $10,000: the new loan must be $70,000 above your current balance to deliver $60,000 in hand. Factor closing costs into your decision. The breakeven question for rate improvement: if the new rate is lower than your current rate, divide closing costs by monthly savings. If higher (common in cash-out refinancing), the breakeven applies to whatever the cash funds - does the return on the $60,000 exceed the additional interest cost over time?

Cash-Out Refinance vs HELOC vs Home Equity Loan

Cash-out refinance replaces your entire first mortgage with one new loan at one rate. Best when rates are favorable compared to your current mortgage and you want a single payment. HELOC provides a revolving credit line as a second loan with variable rates. Best for ongoing access to equity without disturbing a low-rate first mortgage. Home equity loan provides a lump sum as a second loan with a fixed rate. Best for one-time needs while keeping a favorable first mortgage in place. In the current rate environment, homeowners with low-rate first mortgages (3-4% from 2020-2021) generally benefit more from a second lien product (HELOC or equity loan) than from a cash-out refinance that replaces their favorable first mortgage with a higher-rate loan.

Tax Implications of Cash-Out Refinancing

Interest on the cash-out portion is tax deductible only if the funds are used to buy, build, or substantially improve the home. Using $60,000 for a kitchen renovation: interest on the full new loan is deductible (up to the $750,000 combined limit). Using $60,000 for debt consolidation or a business venture: only interest on the original mortgage balance is deductible, not the cash-out portion. This tax distinction can make a meaningful difference in the effective cost of borrowing. For renovation-funded cash-out refinances, the deductibility partially offsets the interest expense, lowering the true after-tax cost by your marginal tax rate (22-37% for most borrowers).

Risks and Considerations Before Proceeding

Rate reset risk: if your current mortgage rate is below market, a cash-out refinance permanently replaces it with today higher rate. You lose the low-rate advantage for the entire remaining balance, not just the cash-out portion. Amortization reset: a new 30-year term restarts the clock, meaning you pay more years of interest. Equity reduction: the cash-out shrinks your ownership stake, increasing vulnerability if home prices decline. Closing cost burden: $8,000-$15,000 in costs reduces the effective cash received. Discipline risk: accessing equity for consumption (as opposed to investment) can become habitual, slowly eroding the wealth your home represents. Each of these factors should be weighed against the specific purpose of the cash-out and the availability of cheaper or less risky alternatives.

Frequently asked questions