The trap: repricing cheap debt to get cash
If you hold a 3–5% pandemic-era rate, a cash-out refinance at today's rates reprices your entire balance upward to access a slice of equity — routinely the most expensive way to borrow that money. That's when a HELOC or home-equity loan (second lien, first mortgage untouched) wins decisively. Cash-out shines in the opposite case: your current rate is at or above market, so you'd benefit from a plain refinance anyway and the cash rides along at little marginal cost. The per-dollar cost figure above tells you which world you're in.
How this calculator works
A cash-out refinance replaces your loan with a bigger one; the tool computes what the cash truly costs:
Available equity (typical cap)
max cash ≈ home value × 80% − current balance
New loan
P = current balance + cash out + closing costs (if financed)
The new payment amortizes P at the new rate and term. The true cost of the cash is the lifetime difference between keeping your current loan and taking the new one — reported alongside the payment change so a term reset can’t hide it.
Worked example
A $250,000 balance at 6.5% with 26 years left, taking $40,000 cash out into a new 30-year loan at 7% with $5,000 in closing costs financed.
| Current payment | $1,662.29 |
|---|---|
| New loan (balance + cash + costs) | $295,000 |
| New payment | $1,962.64 |
| Payment increase | +$300.35/mo |
| True lifetime cost of the cash | $147,915 |
Pulling out $40,000 raises the payment by $300 — but the eye-opener is the $147,915 lifetime cost. That is because a cash-out refinance reprices your entire balance at the new (higher) rate and resets the term to 30 years, so the cheap existing debt gets repriced too. When your current rate is below market, a HELOC or home-equity loan that leaves the first mortgage untouched is often far cheaper. See cash-out vs. HELOC.
Frequently asked questions
How does a cash-out refinance work?
You replace your mortgage with a bigger one and pocket the difference. Owe $220,000 on a $420,000 home and take $50,000 cash: the new loan is ~$270,000 (plus costs), your payment reprices at today’s rate, and the clock usually restarts at 30 years.
How much cash can I take out?
Most lenders cap the NEW loan at 80% of the home’s value (VA allows more). On a $420,000 home that’s a $336,000 max loan; subtract your current balance to find your maximum cash. The calculator flags you when you cross 80%.
What does the cash actually cost?
More than the rate suggests: you pay the new rate on your ENTIRE balance (not just the cash), often for a restarted 30-year term, plus closing costs of 2–6%. The calculator totals every extra dollar you’ll pay versus keeping your current loan and divides by the cash — a per-dollar price that makes offers comparable.
Cash-out refi vs. HELOC vs. home equity loan?
Cash-out reprices everything — great if your current rate is high, expensive if it’s low. A HELOC/home-equity loan adds a second, smaller loan and leaves your first mortgage untouched — usually smarter when you locked a low rate. Rule of thumb: current rate below today’s market → lean HELOC; above → compare both.
Is cash-out money taxable?
No — it’s borrowed money, not income. Interest may be deductible only if the funds substantially improve the home (and you itemize); consolidation or other uses generally aren’t deductible. Confirm with a tax professional.
Is using a cash-out refi to pay off credit cards smart?
It converts unsecured 24% debt into ~7% secured debt — mathematically strong, behaviorally risky: your house now secures old card spending, and re-run cards create double debt. Compare against a consolidation loan first, and only proceed with the spending fixed.
Related calculators
- Refinance Calculator — Find your break-even month and lifetime savings before you refinance.
- Mortgage Calculator — Estimate your full monthly payment — principal, interest, property taxes, insurance, PMI, and HOA — with a complete amortization schedule.
- Debt Consolidation Calculator — Your debts vs. a real loan offer at the same monthly budget — fees counted, longer-term tricks exposed.
- Mortgage Payoff Calculator — Pay off your existing mortgage early: extra monthly payments, lump sums, and your new payoff date.
Disclaimer: Educational purposes only — not financial advice or a loan offer. LTV caps and pricing vary by lender and program. See our Terms of Use.