What it does
A cash-out refinance replaces your mortgage with a bigger one and pays you the difference. This calculator finds the most you can take out, the new payment, and the total cost against keeping your mortgage and borrowing the same cash with a HELOC.
Maximum loan-to-value
| Loan type | Max LTV for cash-out |
|---|---|
| Conventional (Fannie Mae), 1-unit main home | 80% |
| Conventional, 2–4 unit main home, second home or 1-unit investment | 75% |
| FHA | 80% (since September 2019) |
Fannie Mae also needs the mortgage being paid off to be at least 12 months old. VA cash-out loans have their own rules and a 2.15% or 3.3% funding fee. Lenders can set lower limits.
How it's calculated
New loan = balance + cash + financed closing costs
Cost after N years = upfront costs + payments made + balance still owed
For the HELOC, the cost is the HELOC fees, your old mortgage payments and balance, and the HELOC payments and balance, assuming a fixed HELOC rate repaid in equal payments. The cheaper option is the one with the smaller total, and the break-even year is when the other one takes over.
Worked example
A $500,000 home with $250,000 owed at 4% (25 years left, $1,319.59 a month). At 80% LTV with $8,000 of costs added, the most cash is 400,000 − 250,000 − 8,000 = $142,000. The new $400,000 loan at 6.5% for 30 years costs $2,528.27 a month. Taking the $142,000 as a HELOC at 8.5% over 20 years instead costs $1,232.31 a month on top of your current payment. After 10 years, the HELOC route costs about $57,979 less, because the 4% mortgage stays in place.
Limitations
- HELOC rates are usually variable, and many HELOCs start interest-only. The comparison assumes a fixed rate repaid from day one.
- It doesn't discount future money, tax effects or the cash's use.
- Resetting to a new 30-year term lowers the payment but stretches the debt.