Cash-out refinance calculator: roll high-rate debt into one payment

What this measures

A cash-out refinance replaces the current mortgage with a bigger one. The difference pays off other debts at closing, and the closing costs are either paid in cash or added to the new loan. The household goes from several payments to one.

The calculator runs both paths month by month. On the keep-it path, the mortgage pays down on its schedule and each debt is paid at the payment you enter until it is gone, so the monthly total drops as debts finish. On the refi path, one new loan amortizes at the new rate and term. Break-even is the first month when the payments saved add up to the closing costs.

It also compares interest and fees over the horizon you choose, and over the full life of the loans. Stretching a four-year car loan over thirty years can cost more in total even at a lower rate, so the page shows that number too, and what happens if the homeowner keeps paying today's total into the new loan.

Formula

Debts paid off = card + auto + HELOC + other balances. Base loan = mortgage balance + debts paid off + extra cash out. New loan = base loan ÷ (1 − closing cost %) when costs are rolled in, or the base loan when they are paid in cash. Closing costs = new loan × closing cost %.

New LTV = new loan ÷ home value. New payment = the standard amortizing payment on the new loan at the new rate and term. Monthly payment change = new payment − (current mortgage principal and interest + current debt payments).

Break-even month = the first month where the running total of payments saved is at least the closing costs. Interest and fees saved over the horizon = interest on the current path − (interest on the new loan + closing costs).

Example

Example

The sample homeowner owes $248,000 at 7.375% with 26 years left, a $1,788.59 payment, plus $77,000 of other debt at a weighted 14.51% with $2,095 of payments, for $3,883.59 a month. A 30-year refi at 6.125% with 2% closing costs rolled in makes the new loan $331,632.65, including $6,632.65 of costs, a 63.2% LTV. The one new payment is $2,015.03, so the household keeps $1,868.55 more each month. The costs are earned back in 4 months, and over 5 years interest plus fees come to $104,973.62 against $115,867.71 on the current path, $10,894.09 less. Monthly savings is $1,869. Break-even is 4 months. New loan-to-value is 63.2%.

Illustrative example. Every input is a sample so the math is visible, not a rate quote, a market average, or a real client. Over the full 30 years the refi pays more interest than today's loans would, because the short debts are stretched out. If the homeowner keeps paying $3,883.59 a month into the new loan, it is paid off in 113 months with about $105,043 of interest, roughly $226,036 less than staying on the current path.

How much cash can you take out?

Max cash out = home value × the lender's max cash-out LTV − closing costs on that loan − the mortgage payoff. The cap is the lender's number, not ours: on many conventional loans Fannie Mae's eligibility matrix allows up to 80% for a 1-unit primary home, 75% for a 1-unit investment property, and 70% for a 2–4 unit investment property. Lenders also usually want the current mortgage and your time on title to be seasoned before a cash-out refinance, so ask yours for the current rules.

Illustrative example. The sample home is worth $525,000 with a $248,000 mortgage. At an 80% cap the largest loan is $420,000. Closing costs of 2% on that loan are $8,400, so that is up to $163,600 of cash before paying off the debts you entered; about $86,600 would be left after those debts ($420,000 − $8,400 − $248,000 = $163,600, then $163,600 − $77,000 = $86,600). The same house held as a 1-unit rental at a 75% cap allows a $393,750 loan and about $137,875 of cash, and at 70% on a 2–4 unit it would be a $367,500 loan and about $112,150. These are sample numbers, not a quote.

Example

Second example

Illustrative example. A $400,000 home has a $180,000 mortgage at 6.875% with 25 years left, a $1,257.89 payment, plus a $15,000 card at 24.9%, a $20,000 car loan at 8.9%, and a $5,000 personal loan at 12%, with $1,150 of payments. A 30-year refi at 5.875% with 2.5% closing costs rolled in borrows $225,641.03, a 56.4% LTV. The new payment is $1,334.75 against $2,407.89 today, $1,073.13 a month lower, and the $5,641.03 of costs is earned back in 6 months. These figures are made up and are not the sample in the form above.

When this ratio misleads

A big monthly savings number can hide a longer, costlier payoff. The lower payment comes partly from a lower rate and partly from stretching short debts over a new 30-year term. The page shows lifetime interest and the keep-paying-today's-amount option so that trade is visible, and the client can pick a 15- or 20-year term to see the difference.

Common pitfalls

Using the minimum payment when the client actually pays more on a card. Enter what is really paid each month, or the savings and break-even will be wrong.

Leaving out the closing costs the lender quotes. Origination, appraisal, title, and recording fees on a refinance often run a few percent of the loan, and they set the break-even.

Forgetting the cash-out cap. Many lenders limit a cash-out refinance to around 80% of the home's value, so check the new LTV before the plan depends on it.

Paying off the cards and running them back up. The debt is now secured by the house, so a plan to keep the balances at zero matters as much as the rate.

Questions