Cash-Out Refinance Calculator

What is a cash-out refinance?

A cash-out refinance replaces your existing mortgage with a new, larger loan. It comes with a new rate and set of terms, so you can refinance your primary mortgage and access some of your equity in one loan. By getting a larger mortgage, you’ll pay off the original loan and pocket the difference to spend as you wish.

For example, if you have $200,000 remaining on your mortgage and you want $16,000 to build a new deck, you may be able to refinance into a $216,000 home loan, paying off your first mortgage and using the balance to finance the project.

You don’t have to use the lender that financed your initial mortgage; you can shop around and find the best offer. NerdWallet’s roundup of the best cash-out refinance lenders can be a great place to start your search.

Who should get a cash-out refinance?

If these factors apply to you, you may be a good candidate for a cash-out refinance.

You’d prefer one loan

If you’d like to finance your home and access additional cash with one loan, a cash-out refinance will allow you to do so.

On the other hand, if you’re comfortable with the idea of a second loan, you might explore all of your options for converting equity into cash, including a HELOC or home equity loan, to compare offers. These are second mortgages that would allow you to access some of your equity and convert it into cash without affecting your primary mortgage rate.

You can afford a new rate and term

A cash-out refinance can be an ideal choice if it will enable you to get a better mortgage interest rate than what you’re currently paying on your mortgage. If rates have gone up since you got your current mortgage, you’ll want to be sure that you can afford the new monthly payments. You’ll also want to be sure the new term (or repayment period) works for your monthly budget and your long-term goals.

Your mortgage balance is 80% or less than the value of your home

You’re usually limited in how much of the home’s value you’re able to mortgage. Most lenders will allow you to finance up to 80% of the home’s value with a cash-out refinance. That way, you’ll retain at least 20% equity.

For example, a borrower with a remaining mortgage balance of $200,000 and a home worth $270,000 could refinance to a maximum loan amount of $216,000 (80% of $270,000) through a cash-out refinance with most lenders. This would leave the homeowner with $16,000 left over after paying off their original mortgage.

If you haven’t acquired at least 20% equity in your home yet, you’ll qualify with a much smaller pool of lenders.

Alternatives to a cash-out refinance

A cash-out refinance makes the most sense if mortgage rates are lower than your current rate. If rates have gone up since you originally got your mortgage, you may want to explore a home equity line of credit (HELOC) or home equity loan.

Cash-out refinances, HELOCs and home equity loans all typically have better rates than personal loans because they’re backed by an asset. Since you’re using your home as collateral, you could lose it to foreclosure if you can’t make your payments. For this reason, it’s safest to use the funds for wealth-building expenses, like a home renovation or other investment in your property. Purchases that don’t add to your wealth — like a vacation or boat, for example — are likely not worth the additional risk.

» MORE: Home equity loan or HELOC vs. cash-out refinance

Cash-out refinance costs

As with any mortgage, a cash-out refinance comes with closing costs, often between 2% and 5% of the loan amount. In the example above, a borrower getting a cash-out refinance with a new loan balance of $216,000 can expect to pay between $4,320 and $10,800 in closing costs, which could be rolled into the loan. Borrowers should factor this in when calculating whether they can access enough equity to meet their needs, as well as how this additional expense affects their monthly savings goals after refinancing.