A homeowner with a $450,000 house and a $280,000 mortgage can borrow up to $80,000 on paper through a cash-out refinance. Once closing costs come out, about $69,200 actually arrives. And at October 2026 rates, the bigger cost is not the fees. It is the higher rate charged on the $280,000 that was already borrowed.

That last point decides most cases for the readers of this blog, who mostly have first mortgages below 6%. Freddie Mac's Primary Mortgage Market Survey put the 30-year fixed average at 7.32% for the week of October 22, 2026, down from 7.40% the week before and up from 6.19% a year earlier. This page sets out the formula, runs it on that one household, and shows where the headline number and the real one part ways.

The one idea the math rests on

Everything in a cash-out refinance follows from one ratio: loan-to-value, or LTV. That is the new loan amount divided by the home's appraised value. A lender caps it, and the cap, not the owner's wishes, sets the size of the new loan. The old mortgage is paid off out of that new loan, and whatever is left over is the cash.

So the formula has three lines:

  1. Maximum new loan = appraised value × LTV cap
  2. Gross cash = maximum new loan − current payoff
  3. Net cash = gross cash − closing costs

Take a $450,000 home and a conventional loan on a one-unit primary residence. Fannie Mae's Eligibility Matrix caps that at 80%, so the largest new loan is $360,000. Subtract the $280,000 payoff and $80,000 is left. Subtract closing costs and the result is the number that matters. Readers who want the mechanics before the arithmetic can start with how a cash-out refi actually works.

The cap depends on the loan program and the property. The figures below come from Fannie Mae's matrix for conventional loans and from lender guides for FHA and VA.

Loan type and property Max LTV Max new loan on $450,000 Gross cash after $280,000 payoff
Conventional, 1-unit primary residence 80% $360,000 $80,000
FHA cash-out 80% $360,000 $80,000
VA cash-out (eligible veterans, service members, surviving spouses) 90%, some lenders up to 100% $405,000 at 90% $125,000 at 90%
Conventional, two- to four-unit primary residence 75% $337,500 $57,500
Conventional, 1-unit second home 75% $337,500 $57,500

Two notes on the table. Freedom Mortgage puts the VA cap at 90% and adds that VA borrowers usually pay a funding fee at closing, while Bankrate cites up to 100%. The difference comes down to the lender, so the 90% row is the safer planning figure. USDA loans do not allow cash-out refinancing at all.

What to gather first

None of this costs money until a lender orders an appraisal. A first pass takes an evening with the documents below, most of which the owner already has.

  • A current payoff figure

    Not the balance on the monthly statement. The payoff includes accrued interest and comes from the servicer, usually free through the online account.

  • A realistic estimate of the home's value

    Use recent nearby sales, not the highest online estimate. The lender's appraisal decides the real number later, and appraisal fees are part of closing costs.

  • The LTV cap for the loan type

    80% for most conventional and FHA borrowers on a one-unit primary home. Check the table above for anything else.

  • A closing cost assumption

    Plan on 2% to 6% of the new loan amount. On a $360,000 loan that is $7,200 to $21,600.

  • The current rate and years remaining

    These set the cost of giving up the existing loan, which is where most cash-out math is won or lost.

  • A credit score

    Many lenders accept 620, but Bankrate says the best rates go to scores of 760 or higher.

  • Monthly debts and gross income

    Needed to work out debt-to-income (DTI): total monthly debt payments, including the new mortgage, divided by gross monthly income.

Running the numbers on one house

The household below is hypothetical, but it looks like many of this blog's readers. The home is worth $450,000. The mortgage payoff is $280,000 at 5.25%, with 26 years left. Principal and interest come to about $1,647 a month. The owners want cash for a renovation.

Six steps from home value to real cost

  1. Find the maximum loan

    Multiply the value by the cap: $450,000 × 80% = $360,000. If the result is above the 2026 conforming limit of $832,750 for a one-unit home in most areas, the loan moves into different pricing. Here it is well below that limit.

  2. Subtract the payoff to get gross cash

    $360,000 − $280,000 = $80,000. This is the figure lenders' advertisements imply. It is not what the owner receives.

  3. Estimate closing costs on the new loan

    Lower.com and LendingTree both cite 2% to 6% of the new loan. Bankrate cites 2% to 5%. At 3%, costs on $360,000 come to $10,800. Lower.com's itemized example for a $350,000 refinance comes to $8,550 across lender fees, appraisal, title, recording and prepaid interest, before any discount points.

    $7,200 to $21,600 on a $360,000 loan
  4. Subtract costs to get net cash

    At the 80% cap, costs cannot be added on top of the loan, so they come out of the proceeds: $80,000 − $10,800 = $69,200. If they are paid out of pocket instead, the owner gets $80,000 at closing but has spent $10,800 to get it. The net is the same.

  5. Price the new rate and payment

    Bankrate says cash-out rates usually run 0.25 to 0.50 points above standard refinance rates. Added to the 7.32% PMMS figure, that gives roughly 7.57% to 7.82%. At 7.70%, a 30-year loan of $360,000 costs about $2,567 a month in principal and interest. That is about $920 more than today's payment.

  6. Calculate what the cash really costs

    The new rate applies to the old $280,000 as well. Moving that balance from 5.25% to 7.70% adds about $6,860 of interest in the first year. Interest on the new $80,000 adds about $6,160. Together that is roughly $13,000 a year, or about 16% of the gross cash and close to 19% of the $69,200 that actually arrives, before closing costs are counted.

The $450,000 house, line by line

Hypothetical: conventional loan, one-unit primary residence, 80% cap, closing costs at 3%, cash-out rate assumed at 7.70% against an existing 5.25% loan.

Appraised value$450,000
Maximum new loan (80%)$360,000
Current payoff$280,000
Gross cash$80,000
Closing costs (3% of $360,000)$10,800
Net cash in hand$69,200
Current principal and interest (5.25%, 26 years left)about $1,647/month
New principal and interest (7.70%, 30 years)about $2,567/month
Extra first-year interest from repricing the old $280,000about $6,860
First-year interest on the new $80,000about $6,160

The owner nets about $69,200 and pays about $13,000 in extra interest in the first year to get it. For borrowing on these terms, that works out to an effective cost in the high teens, not 7.70%.

The usual break-even formula, which Chase gives as total closing costs divided by monthly savings, does not apply here because there are no monthly savings to divide by. The payment goes up. Chase says as much: in a cash-out, the larger balance can raise the payment and push break-even further out. Bankrate's rule of thumb is that a refinance tends to pay off when the new rate is at least 0.75 to 1 point below the current one. This household's new rate would be about 2.45 points above it.

There is a fair objection. The 26-year loan and the new 30-year loan are not the same length, so part of the higher interest is simply a longer schedule. Rates may also fall again, and the owner could refinance later. If the cash pays off debt that costs more than the blended high-teens figure, the swap can still come out ahead. All of that is true. None of it changes the arithmetic for a renovation paid for with the cheapest money in the household's finances, which is the existing 5.25% mortgage. LendingTree describes a cash-out as most cost-effective when market rates are at or below the borrower's current rate. That condition does not hold for this household in October 2026. It does hold for an owner whose loan is already at 7.5% or higher, and for that owner the same six steps can come out very differently. The case for refinancing at 7.28% and above is narrow, but it exists.

Where first attempts go wrong

Taking the gross figure as the cash. The most common mistake is planning a project around the $80,000. The warning sign is a budget that equals value × 80% minus balance, with nothing set aside for costs. The fix is to plan on net cash at 4% closing costs, then treat a lower actual figure as a bonus. At 6% the household above would net $58,400, which is $21,600 less than the headline.

An appraisal that comes in low. The cap applies to the appraised value, not the owner's estimate. Every $10,000 the appraiser cuts from the value removes $8,000 from the cash at an 80% cap. At $430,000, the maximum loan falls to $344,000 and gross cash to $64,000. The appraisal fee is already paid by then. A conservative value estimate in the first pass is the only protection.

Going all the way to the cap. Fannie Mae prices cash-out loans with loan-level price adjustments based on credit score and LTV. MortgageResearch.com estimates that borrowers with scores of 680 to 699 can pay 0.25 to 0.50 points more at 80% LTV than at 75%. That higher rate falls on the whole balance. The last few thousand dollars of cash can be the most expensive part of the loan.

A DTI ratio that is too high. Lenders generally want debt-to-income at or below 45%. Under Fannie Mae's cash-out rules, a DU loan file above 45% needs six months of reserves, and MortgageResearch.com puts the practical ceiling at about 50% with those reserves. In the example, the payment rises by about $920, and that increase counts toward DTI. A borrower who qualified easily at the old payment may not qualify at the new one.

Once the first figure is in hand

The six steps give one number: net cash, and what it costs. The next question is whether the same amount can be borrowed more cheaply. Lower.com points out that a home equity loan or a HELOC leaves the existing low-rate first mortgage alone, and the existing loan is exactly what the household above would give up. A second lien carries its own rate and fees. The comparison is between those costs and the roughly $13,000 a year the cash-out adds, not between two advertised rates.

Would a HELOC cost less than resetting the first mortgage?

A worked comparison for owners with sub-5% or low-6% first mortgages who want $50,000 to $60,000 now that rates are above 7%.

Compare cash-out and HELOC

For owners whose numbers still favor a cash-out, the 7.70% used above is an assumption. Only a lender quote replaces it. Quotes can differ a lot. On October 26, 2026, Bankrate's cash-out table listed one 30-year fixed offer at 6.374% with 1.953 points and $14,416 in upfront costs, and another at 7.240% with 1.952 points and $14,914 upfront. Both bought their rates with nearly two points. To compare offers fairly, put each lender's rate, points and total costs into the six steps above. Then use LendingTree's cash-out calculator as a check, and decide on net cash and total cost, not the monthly payment.

Questions people ask at this stage

Multiply the appraised value by the lender's LTV cap, subtract the payoff, then subtract closing costs. For a conventional loan on a one-unit primary home the cap is 80%, so a $450,000 home with a $280,000 payoff allows $80,000 gross, or about $69,200 after 3% closing costs.

Yes, but at the maximum LTV they come out of the cash rather than being added on top. Below the cap, rolled-in costs raise the loan balance and the LTV. At 7.70%, $10,800 rolled into the loan adds about $77 a month and roughly $4,050 of interest over the first five years.

Many lenders accept 620 for conventional loans, and FHA allows scores as low as 580. The best pricing generally needs 720 to 760 or higher. Lower scores at higher LTVs carry larger price adjustments.

Bankrate puts the premium at 0.25 to 0.50 points above standard refinance rates. MortgageResearch.com cites 0.50 to 1.0 points above purchase or no-cash-out rates. For comparison, the PMMS 30-year average was 7.32% for the week of October 22, 2026, and Bankrate's national 30-year refinance APR was 7.55% on October 26, 2026.

Usually not. The new rate applies to the whole balance, including the part already borrowed at the lower rate. Count the extra interest on the old balance as part of the cost of the new cash. When that is done honestly, a cheap-looking cash-out is often the most expensive way to borrow against the house.