By the CalcLedger editorial team · Updated September 2026 · Examples use illustrative rates · How we calculate
A cash-out refinance replaces your current mortgage with a new, larger loan. The new loan pays off the old one, and you receive the difference in cash at closing. Homeowners use it to fund renovations, pay off high-interest debt, cover tuition, or invest. Whether it's a smart move depends mostly on one thing: how your current mortgage rate compares with today's rates.
How much cash can you take out?
Lenders limit the new loan to a share of your home's appraised value, called the loan-to-value (LTV) limit:
- Conventional loans: usually up to 80% LTV for a single-family primary home.
- FHA cash-out: up to 80% LTV.
- VA cash-out: often up to 90%, and in some cases more, for eligible borrowers. See VA loan basics.
Example: a $450,000 home with a $250,000 mortgage. At 80% LTV, the maximum new loan is $360,000, so you could take out up to about $110,000 before closing costs.
What it costs
A cash-out refinance is a full refinance, so you pay closing costs of roughly 2% to 6% of the new loan amount, not just the cash you take. Cash-out loans also often carry a slightly higher rate than a regular refinance, because lenders consider them a bit riskier. Most programs require that you've owned the home for a while, often at least six to twelve months, and lenders will check your credit score and debt-to-income ratio as with any mortgage.
Example 1: your current rate is high
You bought when rates were high and owe $250,000 at 7.5% with 25 years left. Your payment is about $1,847. You need $50,000 for a renovation.
| Option | New monthly payment |
|---|---|
| Cash-out refi: new $309,000 loan (includes $9,000 costs) at 6.75%, 30 years | ≈ $2,004 |
| Keep the 7.5% mortgage + $50,000 home equity loan at 8.5%, 15 years | ≈ $2,340 |
Here the cash-out refinance wins on monthly payment by more than $300, because it also lowers the rate on your existing balance. You get cash and a better rate in one step.
Example 2: your current rate is low
Now suppose the same $250,000 balance is at 3%, with a payment of about $1,186.
| Option | New monthly payment |
|---|---|
| Cash-out refi: new $309,000 loan at 6.75%, 30 years | ≈ $2,004 |
| Keep the 3% mortgage + $50,000 home equity loan at 8.5%, 15 years | ≈ $1,678 |
The cash-out refinance now costs about $326 more per month, because you'd give up a 3% rate on $250,000 to borrow $50,000. In this situation, a home equity loan or HELOC is almost always cheaper. Compare them in our guide to HELOC vs. home equity loan vs. cash-out refinance, or estimate a line of credit with the HELOC calculator.
The hidden cost of stretching debt over 30 years
Even when the monthly payment looks good, remember that cash rolled into a new 30-year mortgage is repaid over 30 years. Borrowing $50,000 at 6.75% costs about $66,700 in interest if it's paid over 30 years, compared with about $9,000 if it were repaid in 5 years at the same rate. If you use a cash-out refinance to pay off credit cards or a car loan, consider paying extra toward the mortgage so you don't turn a five-year debt into a thirty-year one.
Cash-out refinance vs. HELOC at a glance
| Cash-out refinance | HELOC | |
|---|---|---|
| Loans after closing | One new mortgage | Existing mortgage + credit line |
| Rate type | Usually fixed | Usually variable |
| Closing costs | On the whole new loan | Often low or none |
| Your existing rate | Replaced | Kept |
| Best when | Your current rate is high | Your current rate is low |
Good reasons to do a cash-out refinance
- Your current rate is at or above today's rates, so refinancing helps on its own.
- Home improvements that add value, such as a kitchen, a new roof, or an added bedroom. Interest on money used to substantially improve the home may also be tax-deductible, within IRS limits.
- Replacing much higher-interest debt, as long as you don't run the balances back up. See debt consolidation.
Reasons to be cautious
- Your home secures the debt. Turning credit card debt into mortgage debt means that falling behind can put your home at risk.
- You reduce your equity. If home prices fall, you have less cushion, and selling may leave little or nothing after paying off the loan.
- Spending on things that don't last. Using home equity for vacations or cars means paying for them for decades.
Run the numbers
Enter the new loan amount, meaning your current balance plus the cash you want plus closing costs, along with the offered rate and term, in the loan calculator. Compare that payment with your current payment plus a separate home equity loan or HELOC. If you're only refinancing to lower your rate without taking cash, the refinance calculator shows your break-even point and lifetime interest.