Entry № 20 · logged Oct 8, 2026Free, no sign-upMoney · Home
Cash-out refinance: the honest version
A cash-out refinance lets you borrow against the equity you have already built — new loan bigger than the old one, the difference lands in your account. The marketing calls it “unlocking” equity. The ledger calls it borrowing, at mortgage rates, against your own house.
How much can you take?
Most lenders cap the new loan at 80% of the home’s value — below that line the rates are best and mortgage insurance stays off the bill. Worked example:
At 80% loan-to-value the new loan is $320,000 and $20,000 arrives in your account. Note what else happens: your equity falls from $100,000 to $80,000 in one signature.
What the payment looks like
Refinancing the new $320,000 balance at 6.5% over 25 years gives a payment of $2,161 a month — $56 less than the current $2,217 — and $328,199 in total interest versus $365,092 left on the current loan. The payment falls only because the rate fell; you borrowed $20,000 more and reset the balance upward.
Three things the ads skip
- The cash is borrowed at the mortgage rate. That $20,000 costs 6.5% interest like every other dollar of the loan. Spending it on depreciating purchases is the expensive way to buy them.
- You still pay closing costs on the whole new loan. The 3–6% fee applies to $320,000, not to the $20,000 you pocket.
- Equity is your buffer. A thinner equity cushion means a market dip can push you underwater — owing more than the home is worth — which complicates selling or refinancing later.
The legitimate uses are the boring ones: consolidating high-rate debt at the lower mortgage rate, or funding a renovation that adds value to the collateral itself. The test is simple — the cash should leave you richer, not just more liquid.
Figures computed for a $400,000 home, $300,000 balance at 7.5% with 25 years left, cash-out to 80% LTV at 6.5% over 25 years. LTV caps and appraisal rules vary by lender and loan type.
Common questions Form RF-20
How much cash can I get from a cash-out refinance?
Most lenders cap the new loan at 80% of the home’s value. On a $400,000 home with a $300,000 balance, that is a $320,000 loan -- $20,000 in cash -- and equity falls from $100,000 to $80,000.
Does a cash-out refinance raise my payment?
Not always: if the rate drops enough, the payment can fall even on a bigger balance. In the worked example the payment drops $56 a month -- but the debt rises $20,000, so the lower payment is not the same as a win.
What is a cash-out refinance good for?
Consolidating higher-rate debt at the mortgage rate, or funding renovations that add value to the home. It is a poor way to fund depreciating spending -- the cash is borrowed at 6.5% like every other dollar of the loan.