Cash-Out Refinance Calculator
Your new payment against the current one, the break-even on closing costs, and how much of the new interest is actually deductible.
Only the share that substantially improves the home keeps its interest deductible. Debt consolidation does not.
From $1,522 to $2,185 on a $340,000 loan.
$6 for every dollar you take out, spread over the life of the loan.
All the cash is going into the home, so the full interest stays deductible within the $750,000 limit. Keep the invoices.
Two numbers, not one
A cash-out refinance is usually sold on the monthly payment, and that is the least informative figure in the transaction. What matters is the pair: what it does to your payment, and what it does to the total interest you’ll pay before the loan is gone.
Those can point in opposite directions. Refinancing $310,000 into a new $370,000 loan at a lower rate might leave your payment roughly unchanged — while resetting a mortgage you were nine years into back to a full thirty-year term. You get $60,000 now and pay for it with nine years of amortization you had already completed.
The tax line most people get wrong
The cash isn’t taxable. That much is simple, and it’s where most articles stop.
The part that matters is deductibility, and it splits your single new loan into two pieces. Interest on the portion replacing your old balance remains acquisition debt and stays deductible. Interest on the cash you took out is only deductible if that money went into substantially improving the home that secures the loan. Pay off credit cards with it and that share becomes non-deductible — the collateral doesn’t decide the answer, the use does.
Keep records showing where the money went. The burden of proof is yours, and “it was all one mortgage” is not a defence. The full guide to cash-out refinance tax implications covers the tracing rules and the rental-property case, which works differently again.
Costs that don’t show up in the rate
Closing costs on a cash-out typically run 2% to 5% of the new loan — $8,000 to $20,000 on a $400,000 refinance. Divide that by your monthly saving to get the break-even, and be honest about whether you’ll still hold the loan then.
Two more that get missed. If the new balance pushes you above 80% LTV, mortgage insurance comes back, possibly after you had already got rid of it. And if your existing mortgage carries a rate well below today’s, replacing it to reach equity is an expensive way to borrow — a second lien that leaves the cheap first mortgage intact is often the cheaper structure.