How this instrument works
A cash-out refinance replaces your entire existing mortgage with a new, larger loan. The new lender pays off the old balance in full at closing, covers its own fees out of the proceeds, and wires whatever is left to the borrower as cash — one transaction, one new monthly payment going forward, and the old loan closed out completely. That is different from a rate-and-term refinance, which swaps the old loan for a new one of roughly the same size and sends no cash back, and different again from a home equity loan or HELOC, which leaves the original mortgage untouched and stacks a second loan on top of it.
The formula here is pure subtraction — new loan minus old balance minus closing costs — because this sheet answers one question only: how much cash actually lands in the borrower's account. It does not compute the new loan's monthly payment or rate, and it cannot, on its own, tell you how large a new loan you can get. Lenders cap that figure by loan-to-value: a conventional cash-out refinance on a primary residence is commonly limited to about 80% of the home's appraised value, a tighter ceiling than the loan-to-value allowed on a purchase or on a no-cash-out refinance.
The people who run this calculation are usually homeowners consolidating higher-rate debt, funding a renovation, or covering tuition with equity built up over years of payments and price appreciation — and real-estate investors who bought a property in cash or with a hard-money loan, fixed it up, and are now refinancing to recover their capital for the next purchase. The common misreading is treating the cash received as free money: it is new principal, added to the loan and amortizing at whatever rate the new loan carries, usually priced a little higher than a plain rate-and-term refinance because the lender's exposure went up while the collateral did not.
- Enter New loan amount, $ — the size of the replacement loan your lender has quoted or approved, generally capped near 80% of the home's appraised value.
- Enter Existing mortgage balance, $ — the exact current payoff figure from your loan statement, not what you originally borrowed.
- Enter Closing costs, $ — the lender and title fees charged to originate the new loan: appraisal, origination points, title insurance, and recording charges.
- Read Cash received at closing — what is actually wired to you once the old loan and the new loan's own fees are covered.
Worked example — a $94,000 cash-out at closing
A homeowner still owes $250,000 on their mortgage (Existing mortgage balance, $) and an appraisal supports a new loan of $350,000 (New loan amount, $) under the lender's cash-out loan-to-value limit. Originating the new loan costs $6,000 in Closing costs, $ — appraisal, title work, and origination points bundled into one figure.
The formula runs $350,000 − $250,000 − $6,000 = $94,000, the amount shown as Cash received at closing. The old $250,000 loan is retired completely; the borrower now owes $350,000 on a single new mortgage, and the $94,000 is theirs to spend on a renovation, a rental property's down payment, or paying off higher-rate debt — money the calculator confirms but does not tell them how to use.
Questions
How is a cash-out refinance different from a home equity loan or HELOC?
A cash-out refinance replaces the entire first mortgage with one larger loan and pays the old balance off in full; a home equity loan or HELOC leaves the original mortgage untouched and adds a separate second loan on top of it. That changes what belongs in New loan amount, $ here — it must cover both the old payoff and the cash withdrawn, whereas a HELOC's balance sits apart from the first mortgage entirely.
Why is New loan amount, $ capped by my lender?
Lenders limit cash-out refinances by loan-to-value against the home's appraised value — commonly around 80% for a conventional loan on a primary residence, tighter than what is allowed on a purchase or a no-cash-out refinance. The cap exists because pulling cash out raises the loan balance without raising the collateral behind it, so the figure you enter is bounded by the appraisal, not by how much cash you would like to receive.
Are closing costs charged only on the money I take out?
No — Closing costs, $ are charged against the full New loan amount, $, not just the cash portion. Origination points, appraisal fees, title insurance, and recording charges are typically priced as a percentage of the entire new loan, often 2% to 5% of it, so a bigger loan means bigger closing costs even when the cash received stays the same.
Is the cash from a cash-out refinance taxed as income?
No — the proceeds are borrowed money, not income, so nothing is owed on them when disbursed. What can change is the mortgage interest deduction: interest on the share of the new loan that pays off the old balance generally keeps its deductibility, but interest on cash spent on something other than buying, building, or substantially improving the home may not qualify under current IRS rules — see IRS Publication 936.
Why do cash-out refinance rates run higher than a rate-and-term refinance?
Lenders price a cash-out refinance as riskier than one that returns no cash, since the loan balance rises relative to the home's value instead of falling. That premium is usually a fraction of a percentage point, but it applies to the entire New loan amount, $ for the life of the loan — this sheet computes the cash disbursed at closing, not the payment that rate produces afterward.
What does it mean if Cash received at closing comes out negative?
It means Closing costs, $ are larger than the equity being tapped — the new loan does not even cover paying off the old balance plus its own fees, so the borrower would have to bring money to the closing table rather than leave with any. That is a sign to compare the same fees against a smaller New loan amount, $ or to look at a plain rate-and-term refinance instead.
References
- Consumer Financial Protection Bureau — Owning a Home
- Federal Reserve — Consumer's guide to mortgage settlement costs
- IRS — Publication 936, Home Mortgage Interest Deduction
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.