How a cash-out refinance works
A cash-out refinance replaces your current mortgage with a new, larger one and pays you the difference in cash. Lenders limit the new loan to a percentage of your home's value — the loan-to-value (LTV) cap, typically 80% for conventional loans. Your available cash is that capped loan amount minus the balance you currently owe.
Because you're borrowing more, your monthly payment usually goes up. This calculator amortizes the new loan at your chosen rate and term to show the new principal-and-interest payment, and the resulting LTV.
Cash-out vs. line of credit
A cash-out refinance gives you a lump sum and a single fixed payment, but resets your whole mortgage. A home equity line of credit keeps your first mortgage and adds a flexible line of credit on top — handy when you only need cash occasionally.
The formula
A cash-out refinance is two calculations in one:
Cash available = (home value × max LTV) − current balance
New payment = the full new loan amount, amortized at your rate over your term
The new loan is your old balance plus the cash you take, and the whole thing is repaid at today's rate — which is why your payment usually rises even if your rate is similar.
Worked example
Your home is worth $400,000, you owe $200,000, and the LTV cap is 80%. The maximum new loan is $400,000 × 0.80 = $320,000, so you could cash out up to $120,000 before closing costs. Take the full amount at 7% over 30 years and the new principal-and-interest payment is about $2,129/month — up from roughly $1,331 on the old $200,000. You traded a higher payment for $120,000 in cash.
Closing costs to expect
A cash-out refinance carries full refinance closing costs — typically 2%–6% of the new loan: lender origination, appraisal, title insurance, and recording fees. On a $320,000 loan that's roughly $6,400–$19,200, often rolled into the loan. Factor these in when comparing against a home equity loan or HELOC, which usually cost far less to open.
Cash-out refinance vs. the alternatives
| Option | Effect on your mortgage | Rate | Closing costs |
|---|---|---|---|
| Cash-out refinance | Replaces it entirely | New rate on whole balance | 2%–6% of new loan |
| Home equity loan | Keeps it; adds 2nd loan | Fixed, on the 2nd loan only | Lower |
| HELOC | Keeps it; adds a credit line | Variable | Low / often none |
When a cash-out refinance makes sense
It's usually the best move when today's rates are at or below your current rate (so refinancing the whole balance doesn't cost you), you need one large lump sum, and you want the certainty of a single fixed payment. If your existing rate is much lower than today's, a home equity loan or HELOC that leaves your first mortgage alone is usually cheaper — see HELOC vs. cash-out refinance.
How to qualify for a cash-out refinance
Lenders look at four things before approving a cash-out refinance:
- Credit score — usually 620+ for conventional loans; a higher score earns a better rate.
- Equity remaining — you generally must keep at least 20% equity after cashing out (the 80% LTV cap).
- Debt-to-income (DTI) — most lenders want your total monthly debts under about 43–50% of gross income.
- Stable, verifiable income — pay stubs, W-2s or tax returns, plus a fresh appraisal to confirm the home's value.
Meeting the minimums gets you approved; exceeding them gets you the best pricing.
Frequently asked questions
How much cash can I get?
What's the maximum LTV?
Will my payment go up?
Sources: CFPB — Mortgages · CFPB Owning a Home · our methodology.