Cash-Out Refinance Calculator
Cash-out refinancing enables homeowners to tap into accumulated home equity by replacing their existing mortgage with a larger loan and receiving the difference in cash. This comprehensive cash-out refinance calculator helps homeowners evaluate refinancing options, calculate new monthly payments, determine maximum cash-out amounts, analyze total costs, and compare old versus new loan terms using properly formatted mathematical formulas for informed financial decision-making.
Calculate Your Cash-Out Refinance
💰 Current Mortgage Details
🏠 Home Value & Cash-Out
📋 New Loan Terms
Understanding Cash-Out Refinance
Cash-out refinancing replaces your current mortgage with a new, larger loan based on your home's increased value or paid-down balance. The difference between the new loan amount and your existing mortgage balance, minus closing costs, is provided to you in cash. This strategy allows homeowners to access equity accumulated through appreciation, principal payments, or both, while potentially securing better interest rates or loan terms.
Cash-Out Refinance Formulas
Essential Cash-Out Refinance Formulas:
Maximum New Loan Amount (80% LTV):
\[ \text{Max New Loan} = \text{Home Value} \times 0.80 \]
Maximum Cash-Out Available:
\[ \text{Max Cash-Out} = (\text{Home Value} \times 0.80) - \text{Current Balance} - \text{Closing Costs} \]
New Loan Amount:
\[ \text{New Loan} = \text{Current Balance} + \text{Cash-Out Amount} + \text{Closing Costs (if financed)} \]
Monthly Payment Formula:
\[ M = P \times \frac{r(1+r)^n}{(1+r)^n - 1} \]
Where:
- \( M \) = Monthly payment
- \( P \) = Principal (new loan amount)
- \( r \) = Monthly interest rate (annual rate ÷ 12)
- \( n \) = Total number of payments (years × 12)
Loan-to-Value Ratio (LTV):
\[ \text{LTV} = \frac{\text{New Loan Amount}}{\text{Home Value}} \times 100\% \]
Home Equity Remaining:
\[ \text{Equity} = \text{Home Value} - \text{New Loan Amount} \]
Cash Actually Received:
\[ \text{Cash Received} = \text{New Loan} - \text{Current Balance} - \text{Closing Costs} \]
Comprehensive Cash-Out Refinance Example
Example: Complete Cash-Out Refinance Calculation
Current Situation:
- Current mortgage balance: $250,000
- Current interest rate: 5.5%
- Current monthly payment: $1,537
- Years remaining: 25 years
- Current home value: $400,000
Desired Cash-Out: $50,000
New Loan Terms: 6.5% interest, 30-year term, $6,000 closing costs
Step 1: Calculate Maximum Allowable Loan (80% LTV)
\[ \text{Max Loan} = \$400,000 \times 0.80 = \$320,000 \]
Step 2: Calculate New Loan Amount
\[ \text{New Loan} = \$250,000 + \$50,000 + \$6,000 = \$306,000 \]
(Current balance + Cash-out + Closing costs rolled in)
Step 3: Verify LTV is Acceptable
\[ \text{LTV} = \frac{\$306,000}{\$400,000} \times 100 = 76.5\% \]
✓ Below 80% limit, refinance approved
Step 4: Calculate New Monthly Payment
Monthly rate: \( r = 0.065 \div 12 = 0.005417 \)
Total payments: \( n = 30 \times 12 = 360 \)
\[ M = \$306,000 \times \frac{0.005417(1.005417)^{360}}{(1.005417)^{360} - 1} \]
\[ M = \$306,000 \times 0.006321 = \$1,934 \text{ per month} \]
Step 5: Compare Old vs. New
Monthly payment increase: $1,934 - $1,537 = $397 more per month
Cash received: $306,000 - $250,000 - $6,000 = $50,000
Remaining equity: $400,000 - $306,000 = $94,000 (23.5% equity)
Analysis: Homeowner receives $50,000 cash but pays $397 more monthly and resets to 30-year term from 25 years remaining. Total interest over new loan life: $390,240 versus $211,100 remaining on old loan—increase of $179,140. Consider if cash-out benefits justify these costs.
Maximum Cash-Out Calculations
Lenders limit cash-out refinancing to maintain minimum equity cushion, typically requiring borrowers to retain at least 20% equity post-refinance. Understanding these limits helps set realistic expectations.
| Loan Type | Maximum LTV | Minimum Equity Required | Example on $400K Home |
|---|---|---|---|
| Conventional | 80% | 20% | Max loan $320,000 |
| FHA Cash-Out | 80% | 20% | Max loan $320,000 |
| VA Cash-Out | 100% | 0% | Max loan $400,000 |
| Jumbo Cash-Out | 70-75% | 25-30% | Max loan $280,000-$300,000 |
| Investment Property | 70-75% | 25-30% | Max loan $280,000-$300,000 |
LTV Limit Implications: On $400,000 home with $200,000 current mortgage, 80% LTV allows maximum $320,000 new loan. Maximum cash-out: $320,000 - $200,000 = $120,000 (before closing costs). If you want $150,000 cash-out, total new loan would be $350,000 (87.5% LTV)—exceeds conventional limits. Options: 1) Take only $120,000 cash-out within limits, 2) Consider VA loan if eligible (100% LTV), 3) Wait for more home appreciation or pay down mortgage to lower LTV. Higher LTV increases interest rates—every 5% LTV increase typically adds 0.25% to rate.
Closing Costs for Cash-Out Refinance
Cash-out refinance closing costs typically run 2-5% of new loan amount, higher than rate-and-term refinance due to increased underwriting requirements and lender risk.
Typical Closing Cost Breakdown
| Cost Item | Typical Amount | On $300K Loan | Notes |
|---|---|---|---|
| Loan Origination Fee | 0.5-1.5% of loan | $1,500-$4,500 | Lender processing fee |
| Appraisal Fee | $400-$800 | $500-$700 | Required for all cash-out refi |
| Title Insurance | $1,000-$2,500 | $1,500 | Protects lender's interest |
| Title Search & Exam | $200-$400 | $300 | Verify clear title |
| Credit Report | $25-$50 | $35 | Per borrower |
| Underwriting Fee | $400-$900 | $600 | Loan approval process |
| Recording Fees | $100-$300 | $200 | County filing fees |
| Survey (if required) | $300-$600 | $450 | Not always required |
| Attorney Fees | $500-$1,500 | $800 | Some states require |
| Prepaid Items | Variable | $1,000-$3,000 | Taxes, insurance, interest |
| TOTAL | 2-5% of loan | $6,000-$15,000 | Average ~3% ($9,000) |
Cash-Out vs. Rate-and-Term Refinance
Understanding the differences between cash-out and rate-and-term refinancing helps choose the right refinancing strategy for your financial goals.
| Aspect | Cash-Out Refinance | Rate-and-Term Refinance |
|---|---|---|
| Purpose | Access home equity as cash | Lower rate or change loan term |
| New Loan Amount | Higher than current balance | Equal to current balance |
| Interest Rates | 0.25-0.50% higher | Standard market rates |
| LTV Limit | Typically 80% maximum | Up to 95-97% possible |
| Closing Costs | 2-5% of new loan | 2-3% of loan amount |
| Credit Requirements | 620-640 minimum (higher better) | 620 minimum typically |
| Documentation | Extensive (income, assets, debts) | Standard documentation |
| Cash Received | Yes (loan amount - payoff - costs) | No cash received |
| Best For | Home improvements, debt consolidation, major expenses | Reducing interest rate or monthly payment |
When Cash-Out Refinance Makes Sense
Cash-out refinancing is financially advantageous in specific scenarios where benefits clearly outweigh costs. Evaluating your situation against these criteria ensures wise financial decisions.
Beneficial Cash-Out Scenarios
- High-Interest Debt Consolidation: Paying off credit cards at 18-24% with mortgage at 6.5% saves substantial interest. Example: $50,000 credit card debt at 20% costs $10,000/year interest. At 6.5% mortgage, costs $3,250/year—saving $6,750 annually. Plus mortgage interest may be tax-deductible.
- Value-Adding Home Improvements: Kitchen remodel costing $50,000 may increase home value by $40,000-$60,000. ROI on improvements: Kitchen (60-80%), Bathroom (60-70%), Additional bedroom/bathroom (50-60%). Cash-out at 6.5% cheaper than home equity loan at 8-9%.
- Investment Opportunities: If investment return exceeds mortgage rate—rental property yielding 10% ROI versus 6.5% mortgage cost—leverage makes sense. Caution: Investment returns not guaranteed like mortgage interest is fixed.
- Business Funding: Starting business or expanding existing one. Mortgage rates lower than business loans (8-15%). Risk: Pledging home for business venture—only if confident in business viability.
- Education Expenses: College tuition funded at 6.5% mortgage rate versus Parent PLUS loans at 8-9% or private student loans at 9-14%. Savings significant on large education expenses ($50,000-$200,000).
- Medical Expenses: Large medical bills without payment plans. Hospital payment plans often 0% interest but short term. Cash-out provides breathing room without collections risk.
- Home Purchased During Low Equity Period: Bought with 3-5% down, now have 30%+ equity through appreciation. Cash-out to eliminate PMI while accessing equity for other uses.
When to Avoid Cash-Out Refinance
- Current Rate Lower Than New Rate: If existing mortgage at 4% and refinance rates at 6.5%, losing favorable rate costs more long-term than cash-out provides. Consider home equity loan instead.
- Planning to Sell Soon: Selling within 3-5 years means not enough time to recoup $6,000-$10,000 closing costs. Break-even typically 3-5 years depending on monthly payment changes.
- Insufficient Equity: With only 20-25% equity, cash-out brings you to 80% LTV limit—risky if home values decline. Maintain equity cushion for financial security and future flexibility.
- Using Cash for Depreciating Assets: Funding cars, vacations, or consumer goods with home equity converts unsecured debt into secured debt. If can't pay, lose home. Credit cards can be discharged in bankruptcy; mortgages cannot.
- Retirement Age Approaching: Adding years to mortgage when nearing retirement extends debt into fixed-income years. May burden retirement budget. Consider if will have sufficient income to cover increased payments.
- Variable Income: Self-employed or commission-based income makes higher fixed payment risky. Ensure cash-out benefits provide security buffer, not lifestyle inflation vulnerable to income drops.
Tax Implications of Cash-Out Refinance
Understanding tax treatment of cash-out refinancing helps maximize benefits and avoid surprises at tax time.
Tax Deductibility Rules:
Mortgage Interest Deduction Limits (Post-2017 Tax Law):
Interest deductible on mortgage debt up to $750,000 ($375,000 if married filing separately)
Cash-Out Use Matters:
- Home Improvements: Interest deductible. Cash used to "buy, build, or substantially improve" qualified residence.
- Debt Consolidation: Interest NOT deductible. Cash used for non-home purposes.
- Personal Expenses: Interest NOT deductible. Vacation, car, education, etc.
Example Calculation:
$300,000 cash-out refinance: $250,000 pays off old mortgage, $50,000 cash-out
If $50,000 used for home improvements: Full interest on $300,000 deductible
If $50,000 used for credit cards: Only interest on $250,000 deductible, not the $50,000 cash-out portion
Annual interest at 6.5%: $19,500 total
Deductible portion: $19,500 × ($250,000 ÷ $300,000) = $16,250
Non-deductible: $19,500 × ($50,000 ÷ $300,000) = $3,250
Important: Keep detailed records proving cash-out used for home improvements. Receipts, contractor invoices, permits, before/after photos. IRS may audit deduction claims.
Cash-Out Refinance vs. Home Equity Loan
Both access home equity but through different mechanisms with distinct advantages and disadvantages depending on circumstances.
| Factor | Cash-Out Refinance | Home Equity Loan | HELOC |
|---|---|---|---|
| Structure | One new mortgage replaces old | Second mortgage behind first | Revolving credit line |
| Interest Rate | 6.0-7.5% fixed | 7.5-9.5% fixed | 8.5-10.5% variable |
| Closing Costs | 2-5% of loan ($6,000-$15,000) | 2-5% of loan ($2,000-$5,000) | 0-2% or none ($0-$1,000) |
| Access to Funds | Lump sum at closing | Lump sum at closing | Draw as needed |
| Payment | One monthly payment | Two monthly payments | Two payments (separate) |
| Best If | High current rate, large cash need | Low current rate, moderate cash | Ongoing/uncertain cash needs |
| Monthly Payment (Example) | $1,896 total | $1,537 + $489 = $2,026 | $1,537 + interest only |
Decision Framework: Choose cash-out refinance when current mortgage rate is 5.5%+ and new rate is 6.5% (marginal difference). Closing costs spread over large loan amount. Single payment simplifies budgeting. Choose home equity loan when current mortgage at 4% and refinance rates 6.5%—keep favorable rate, take separate loan for cash. Lower closing costs on smaller loan amount. Choose HELOC when cash needs uncertain or ongoing (home renovation paid in stages, tuition payments over years). Flexibility to borrow only what needed when needed. Avoid interest on unneeded funds.
Credit Score Requirements
Credit score significantly impacts cash-out refinance approval and interest rate offered. Higher scores unlock better terms and lower costs.
| Credit Score Range | Approval Likelihood | Rate Impact | Max LTV Allowed |
|---|---|---|---|
| 760+ | Excellent (easy approval) | Best rates available | 80% LTV |
| 740-759 | Very Good | +0.125% above best | 80% LTV |
| 720-739 | Good | +0.250% above best | 80% LTV |
| 700-719 | Good | +0.375% above best | 75-80% LTV |
| 680-699 | Fair | +0.500% above best | 75% LTV |
| 660-679 | Fair (challenging) | +0.750% above best | 70-75% LTV |
| 640-659 | Poor (difficult) | +1.000% above best | 70% LTV max |
| 620-639 | Very Poor (limited options) | +1.500% above best | 65-70% LTV |
| Below 620 | Extremely Difficult | May not qualify | Very limited options |
Break-Even Analysis
Calculating break-even point determines how long you must keep the new mortgage to recoup refinancing costs through monthly savings.
Break-Even Calculation:
Formula:
\[ \text{Break-Even Months} = \frac{\text{Total Closing Costs}}{\text{Monthly Savings}} \]
Monthly Savings Calculation:
\[ \text{Savings} = \text{Old Payment} - \text{New Payment} \]
Note: If new payment is higher (common with cash-out), there is no break-even from payment savings. Benefit comes from cash received and its use.
Example 1: Rate-and-Term Refinance (for comparison)
Old payment: $1,800, New payment: $1,600, Closing costs: $8,000
Monthly savings: $1,800 - $1,600 = $200
\[ \text{Break-Even} = \frac{\$8,000}{\$200} = 40 \text{ months (3.3 years)} \]
Example 2: Cash-Out Refinance
Old payment: $1,537, New payment: $1,934, Closing costs: $6,000, Cash-out: $50,000
Monthly cost increase: $1,934 - $1,537 = $397 more per month
No payment break-even (payment higher, not lower)
Alternative Analysis: Must evaluate if $50,000 cash use saves/earns more than $397/month + $6,000 costs
If paying off debt at 20% ($10,000/year = $833/month interest savings)
Net monthly benefit: $833 saved - $397 increased payment = $436/month net savings
Break-even: $6,000 ÷ $436 = 14 months until closing costs recouped
Frequently Asked Questions
What is cash-out refinance and how does it work?
Cash-out refinance replaces existing mortgage with larger loan, providing difference to homeowner in cash. Process: Apply for new mortgage exceeding current balance by desired cash amount. Lender pays off existing mortgage at closing. Homeowner receives remaining funds as cash lump sum (minus closing costs). Example: Current mortgage $250,000, refinance for $300,000, receive $50,000 cash minus $6,000 closing costs = $44,000 actual cash. New loan carries current market interest rate and reset term (typically 15 or 30 years). Maximum cash-out limited by loan-to-value ratio—conventional loans typically 80% LTV, meaning must maintain 20% equity. Used commonly for home improvements, debt consolidation, major purchases, education expenses, or investment opportunities.
How much can I cash out when refinancing?
Maximum cash-out limited by loan-to-value ratio, typically 80% for conventional loans, meaning must retain 20% equity. Formula: Maximum New Loan = Home Value × 0.80. Cash Available = (Home Value × 0.80) - Current Mortgage Balance - Closing Costs. Example: $400,000 home value, $250,000 current mortgage, $6,000 closing costs. Maximum loan: $400,000 × 0.80 = $320,000. Cash available: $320,000 - $250,000 - $6,000 = $64,000 maximum. VA loans allow up to 100% LTV for eligible veterans ($400,000 loan on $400,000 home). FHA cash-out allows 80% LTV. Jumbo loans often restrict to 70-75% LTV. Investment properties limited to 70-75% LTV. Actual amount also depends on credit score, income verification, and debt-to-income ratio below 43% typically.
What are typical cash-out refinance rates?
Cash-out refinance rates typically 0.25% to 0.50% higher than standard rate-and-term refinance rates due to increased lender risk and larger loan amounts. Current rates (2025): Conventional 30-year fixed cash-out: 6.0-7.5%, 15-year fixed: 5.5-7.0%. Factors affecting rates: Credit score—740+ gets best rates, 0.125-0.25% increase per 20-point drop. LTV ratio—rates increase 0.25% for every 5% LTV above 70%. Loan amount—jumbo loans (over $766,550) carry 0.25-0.50% premium. Property type—investment properties 0.50-0.75% higher than primary residence. Debt-to-income ratio—above 43% may add 0.25-0.50%. Points—paying 1 point (1% of loan) typically reduces rate by 0.25%. Shop multiple lenders as rates vary 0.50-1.00% for identical scenarios.
Is cash-out refinance worth it?
Cash-out refinance worth it when benefits clearly exceed costs. Beneficial when: 1) Consolidating high-interest debt—paying off credit cards at 18-24% with mortgage at 6.5% saves substantial interest. Example: $50,000 debt at 20% costs $10,000/year interest, at 6.5% costs $3,250/year, saving $6,750 annually. 2) Home value appreciated significantly—gained $100,000+ equity providing comfortable margin above 80% LTV. 3) Current mortgage rate only slightly lower than new rate (5.5% current vs. 6.5% new). 4) Using cash for value-adding home improvements with strong ROI (kitchen remodel 60-80% return). Not worth it when: 1) Current rate much lower than refinance rate (4% vs. 6.5%—keep favorable rate, use home equity loan instead). 2) Selling home within 3-5 years (insufficient time to recoup $6,000-$15,000 closing costs). 3) Using cash for depreciating assets (cars, vacations) converting unsecured to secured debt risking home. Calculate break-even and compare total interest costs over loan life.
What are cash-out refinance closing costs?
Cash-out refinance closing costs typically 2-5% of new loan amount, averaging 3%. Major costs on $300,000 loan: Loan origination fee (0.5-1.5% of loan) = $1,500-$4,500. Appraisal fee = $400-$800 (required for all cash-out refinances). Title insurance and search = $1,000-$2,500. Credit report = $25-$50 per borrower. Underwriting fee = $400-$900. Recording fees = $100-$300. Survey if required = $300-$600. Attorney fees in some states = $500-$1,500. Prepaid items (property taxes, insurance, interest prorated) = $1,000-$3,000. Total example: $1,500 origination + $500 appraisal + $1,500 title + $600 underwriting + $2,000 other fees = $6,100 (2% of $300,000 loan). Some costs negotiable—shop lenders. Can finance closing costs into loan amount (adds to principal) or pay out of pocket. No-closing-cost refinances available but carry higher interest rates (typically 0.25-0.50% higher).
Can I do cash-out refinance with bad credit?
Cash-out refinance with bad credit is challenging but possible with limited options. Minimum credit scores: Conventional loans require 620-640 minimum for cash-out (620 absolute minimum, 640 more realistic). FHA cash-out requires 600-620 minimum (580 possible with 10%+ equity, but most lenders want 600+). VA cash-out refinance allows 580-620 minimum for eligible veterans. Credit score impacts significantly: 620-639 score faces +1.5% higher interest rate versus 760+ score. On $300,000 loan, difference between 6.5% (good credit) and 8.0% (poor credit) is $283 monthly ($1,899 vs. $2,182) and $102,000 total interest over 30 years. Lower credit also restricts maximum LTV to 65-70% instead of 80%, reducing available cash. Strategies to improve approval chances: Pay down debt to improve DTI ratio. Dispute credit report errors. Add co-borrower with better credit. Wait 6-12 months while improving credit score (each 20-point increase saves approximately $25-50 monthly on $300,000 loan). Consider FHA or VA loans which have more flexible requirements than conventional.
How long does cash-out refinance take?
Cash-out refinance typically takes 30-45 days from application to closing, slightly longer than rate-and-term refinance due to additional underwriting requirements. Timeline breakdown: Application and initial review (1-3 days)—submit income docs, bank statements, tax returns. Home appraisal ordered and completed (7-14 days)—required for all cash-out refinances to verify home value. Underwriting review (10-20 days)—lender verifies income, employment, assets, credit, title search. Appraisal review and verification (2-5 days)—ensuring home value supports loan amount. Conditional approval (1-3 days)—may require additional documentation. Final approval and clear to close (2-5 days)—all conditions satisfied. Closing scheduled (3-7 days out)—sign documents, receive cash. Factors causing delays: Appraisal backlogs (especially in hot markets). Title issues requiring resolution. Self-employed borrowers need additional income documentation. Appraisal comes in low requiring renegotiation. Lender backlogs during busy seasons. Expedite process by: Pre-approved before applying. All documents ready upfront. Responsive to lender requests. Avoid changing jobs or making major purchases during process.
Do I pay taxes on cash-out refinance?
Cash received from cash-out refinance is NOT taxable income because it's loan proceeds (borrowed money), not earned income. IRS does not tax borrowed funds. However, there are important tax considerations: Mortgage interest deduction—post-2017 tax law limits interest deduction to mortgage debt up to $750,000 ($375,000 married filing separately). Cash-out use determines deductibility: If cash used for home improvements (buying, building, or substantially improving residence), full interest on cash-out portion is deductible. Example: $300,000 refinance, $50,000 cash-out for kitchen remodel—full $300,000 loan interest deductible. If cash used for non-home purposes (debt consolidation, vacation, car purchase), interest on cash-out portion NOT deductible. Example: $300,000 refinance, $50,000 for credit cards—only interest on $250,000 original mortgage portion deductible, not the $50,000 cash-out portion. Keep detailed records: Save all receipts, contractor invoices, permits, before/after photos proving home improvement use. IRS may audit mortgage interest deductions. Consult tax professional for specific situation, especially on large cash-out amounts or complex uses.