The Quick Read: Your new payment comes from five pieces: the new loan amount, the interest rate, the term, the taxes and insurance, and any mortgage insurance. Start by sizing the new loan, since it replaces your old mortgage and includes your cash out. Run that amount through the standard payment formula, then add the extras. The payment usually rises, because the balance grows.
Key Takeaways
- A cash-out refinance replaces your mortgage with one bigger loan. It does not sit on top of your old one.
- The new loan equals your old payoff, plus financed costs, plus your cash. It cannot pass the program’s loan-to-value cap.
- Principal and interest come from one formula. Taxes, insurance and mortgage insurance get added after.
- Cash in hand is smaller than “value times the cap, minus your balance.” Fees and payoffs come out first.
- Restarting the term can lower the payment and still raise what you pay over the life of the loan.
What Are You Actually Calculating?
You are calculating the monthly total on one new loan. That loan pays off your current mortgage and puts cash in your pocket. Lendmire arranges cash-out refinance programs through wholesale lenders, and the math below is the same on every one of them.
Loan-to-value, or LTV, is the loan amount divided by the home’s appraised value. A lender sets a ceiling on it. Your appraised value, not your own estimate, sets that ceiling.
Across the wholesale programs we place files with, a conventional cash-out on a one-unit primary residence tops out at 80% LTV. Two- to four-unit homes top out at 75%. Those figures are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
The Inputs You Need First
Gather these before you run any numbers. Most sit on your last mortgage statement or your escrow statement.
| Input | Where to find it | What it changes |
|---|---|---|
| Payoff balance | Lender payoff letter | Starting size of new loan |
| Home value | Appraisal | The LTV ceiling |
| Cash you want | Your plan | Loan size and payment |
| Rate and term | Loan Estimate | Principal and interest |
| Financed costs | Loan Estimate | Loan size and payment |
| Taxes, insurance | Escrow statement | Total monthly payment |
| Mortgage insurance | Loan Estimate | Total monthly payment |
Your payoff is not the balance on your statement. It adds interest accrued since your last payment. Ask your servicer for a payoff letter.
Step 1: Find the Maximum Loan
Multiply the appraised value by the program’s LTV cap. That is your ceiling. Any second mortgage you keep open counts against it.
At 80%, a home appraised at 100 units of value allows a new loan of up to 80 units. Convert that to your own numbers with your appraisal. Your lender may also set a lower ceiling based on your credit and the file.
Step 2: Build the New Loan Amount
The new loan is a sum of parts. Per the Fannie Mae Selling Guide on cash-out refinances, a cash-out loan can:
- Pay off your existing first mortgage, if it is at least 12 months old.
- Pay off second mortgages of any age.
- Finance closing costs, points and prepaid items.
- Put equity in your hands for any purpose.
So the loan equals payoff, plus any second-lien payoffs, plus financed costs, plus your cash. The total must stay under the ceiling from Step 1.
This is why the common shortcut fails. Cash out is not value times 80%, minus your balance. Payoffs, fees and prepaids use up part of that room first. What is left is your cash.
Here is a modeled example. These are assumptions, not market data. Say your home appraises at 100 units, and your payoff is 50% of that. Say financed costs run 2% of value. You want cash equal to 20% of value. The new loan is 72% of value, under the 80% cap.
Push the cash up to 28% and you hit the cap. Ask for more and the lender cannot do it.
Step 3: Calculate Principal and Interest
Principal and interest, or P&I, is the part of your payment that repays the loan and pays the lender. One formula produces it:
Payment = [L × r × (1 + r)^n] ÷ [(1 + r)^n − 1]
Each letter means one thing:
- L is the new loan amount from Step 2.
- r is the monthly rate. Take the annual rate on your Loan Estimate and divide it by 12.
- n is the number of monthly payments. Multiply the years in the term by 12. A 30-year term gives 360.
Work it in this order. Convert the rate to monthly. Convert the term to months. Raise (1 + r) to the power n. Plug that into the formula.
Any spreadsheet does this with a built-in payment function. You enter the monthly rate, the number of months and the loan amount. The function returns the same result as the formula.
Early payments are mostly interest. Each month’s interest is your balance times the monthly rate. The rest of the payment trims principal. Over time that split flips.
Step 4: Add Taxes, Insurance and Mortgage Insurance
P&I is not your whole payment. Add these:
- Property taxes. Pull the annual figure from your escrow statement and divide by 12.
- Homeowners insurance. Same method: annual premium divided by 12.
- HOA dues, if you have them.
- Mortgage insurance, if the new loan is above 80% LTV. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
On a conventional cash-out at or under the 80% cap, mortgage insurance usually does not apply. Above 80%, it is usually required. Published typical annual premiums run 0.58% to 1.86% of the balance. That is a range, not a quote. Your actual premium depends on your file.
Mortgage insurance does not last forever. You can request cancellation at 80% of the original value, with good payment history and no second mortgage. The servicer must end it automatically at 78%, as the CFPB’s mortgage insurance guidance explains. After a refinance, “original value” generally means the appraised value on the new loan.
Escrow can shift too. Your new lender sets up a fresh escrow account. The monthly amount can differ from your old one, because the lender starts with current tax and insurance bills. Fannie Mae’s guide notes that financing delinquent taxes requires an escrow account in most cases.
One Borrower, Three Scenarios
Same homeowner, same home, same modeled assumptions as before. Only one thing changes in each case.
Scenario A: A small cash-out. You take cash equal to 5% of value. The new loan is 57% of value, counting the financed costs. Your payment rises modestly against your old one. The balance grew only a little.
Scenario B: The full 20% cash-out. The new loan is 72% of value, about 44% above your old balance. At the same rate and term, P&I rises by about that same percentage. Taxes and insurance stay the same, so the total rises by less. Say the old loan had many years left, and the new one restarts at 30 years. The longer term softens the jump, but not by enough to erase it. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Scenario C: Same cash, shorter term. You take the same 72% loan on a 15-year term. The payment climbs sharply. You pay far less total interest, but your monthly budget has to carry it.
Notice what these show. A cash-out payment usually goes up. Many examples online show it going down, and that happens mainly when the cash pays off other high-cost debt or when the new rate is far below your old one.
Why Your Payment Changed: Three Causes
When you compare old and new payments, three forces are at work. Separate them.
1. Bigger balance. More principal means a higher payment. This is the cost of the cash itself.
2. New rate. A lower rate cuts the payment. A higher rate raises it. This applies to your whole balance, not just the new cash.
3. New term. Restarting at a longer term lowers the payment. It also stretches the payoff. The CFPB’s guide to using home equity warns that a cash-out can extend how long it takes to pay off the mortgage.
To isolate the cost of the cash, run the formula twice at the same rate and term. Use your old payoff the first time. Use the full new loan the second time. The difference is what the extra cash adds each month.
To isolate the term effect, keep the new loan amount and run it on your remaining years. Compare that result to the fresh-term payment. The gap is what the restart buys you, and what it costs in extra years of interest.
Closing Costs: Paid in Cash or Rolled In?
You can pay closing costs at the table or finance them. Financing them raises the loan amount, and therefore the payment and the interest you pay over time. Paying them keeps the loan smaller but uses cash you might want elsewhere.
You may hear that a refinance has “no closing costs.” Read that phrase with care. The costs do not vanish. They are built into the rate or the loan balance.
Your Loan Estimate shows the total closing costs and cash to close. Your Closing Disclosure arrives before closing. The CFPB’s Know Before You Owe page explains the three-business-day review period. Use that window to compare the two forms line by line.
How to Check Your Lender’s Quoted Payment
Do a hand check before you sign. It takes ten minutes.
1. Take the loan amount from the Loan Estimate.
2. Run it through the formula with the quoted rate and term.
3. Add your escrow items and mortgage insurance, if any.
4. Compare your result to the “estimated total monthly payment” on the form.
If your number comes out lower, the usual causes are:
- You left out financed costs, so your loan amount was too small.
- You skipped mortgage insurance.
- Your tax or insurance estimate was old.
- You used the wrong term.
- The escrow account reset at current bills.
If the gap is still unexplained, ask your loan officer for a line-by-line breakdown. A fair question gets a clear answer.
Is the New Payment Affordable?
Lenders test this with the debt-to-income ratio, or DTI. DTI is your total monthly debt payments divided by your gross monthly income. In the wholesale conventional programs we place, the automated finding governs most files, with a total ratio ceiling of 50%. The Fannie Mae matrix also ties minimum reserves to cash-out files with higher ratios. All of this is subject to lender guidelines and full file review.
Passing the lender’s test is not the same as passing your own. Run two checks:
- Stress test. Ask if you could carry the payment if your income dipped or your taxes rose.
- Debt payoff effect. If the cash pays off credit cards or car loans, subtract those payments from your debts. The new mortgage payment replaces them. Your DTI can improve even as the mortgage payment grows.
CFPB research shows many cash-out borrowers use the money to pay down credit card and auto debt. Their credit scores improved at first, then slipped gradually but stayed above pre-refinance levels. The CFPB also flags the trade-off: turning non-mortgage debt into mortgage debt can raise foreclosure risk, since your home secures the loan. See the CFPB’s cash-out research release.
When you weigh the cash against your current setup, Lendmire’s piece How to Size a Cash-Out Refinance Around Its Use and Your New Payment walks through that decision. If you also have a home equity line, the article Lower Payment vs Cash-Out Refinance to Combine a First Mortgage and HELOC covers the side-by-side.
Where the General Rule Breaks
The steps above fit most conventional cash-outs. These cases bend them.
Limited cash-out. Some refinances only pay off your first mortgage, closing costs and a second mortgage used to buy the home. They allow a small amount of cash back. Fannie Mae caps that cash at a small share of the loan or a small flat amount, per Announcement SEL-2025-08. Go over the cap and the loan is priced and capped as a full cash-out. Pay off a second mortgage that was not a purchase loan and it becomes a full cash-out too.
Free and clear homes. If you own the home outright and take out a new loan, that is a cash-out, even when you take no cash.
Seasoning. The first mortgage being paid off must be at least 12 months old, counted from note date to note date. At least one borrower must also have been on title for six months. There are exceptions, including delayed financing, inheritance and legal awards. Delayed financing lets a recent all-cash buyer borrow against the home sooner, with documented funds. The Fannie Mae guide’s earlier version spells out the details.
The 89.99% lane. One wholesale lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score and a 50% ratio on a 30-year fixed rate. It also needs a primary residence, a conforming loan balance and its own six months of seasoning. In Texas, a cash-out on a homestead is capped by the state constitution at the agency figure, so that lane is not written there. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Government loans. FHA and VA streamlines are not cash-out products. The FHA Streamline allows only a token amount of cash back, per HUD. “Streamline” refers to lighter paperwork, not zero costs. The VA IRRRL refinances an existing VA loan, and a VA cash-out carries its own tests. A cash-out on an existing FHA or VA loan goes through a different program with its own caps.
Second homes and rentals. Occupancy decides leverage. Second homes and non-owner-occupied properties get lower caps than your primary residence, so the ceiling in Step 1 shrinks.
Key Terms Defined
Loan-to-value (LTV): The new loan amount divided by the home’s appraised value.
Principal and interest (P&I): The part of your payment that repays the loan and pays the lender.
Escrow: An account your lender uses to collect and pay property taxes and homeowners insurance for you.
Seasoning: The waiting period a loan or title must age before it qualifies for a cash-out.
Debt-to-income ratio (DTI): Your total monthly debt payments divided by your gross monthly income.
Mortgage insurance: Coverage required above 80% LTV that protects the lender. It cancels at 80% on request and ends automatically at 78%. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Frequently Asked Questions
Will my payment go up or down after a cash-out refinance?
It usually goes up, because the balance grows. It can go down if you lock in a much lower rate, restart a longer term, or use the cash to retire other debts. Run the formula on both versions to see which force wins.
How much cash will I really receive?
Less than value times the cap, minus your balance. Your payoff, any second mortgage, financed costs and prepaid items come out of that room first. What remains is your cash.
Should I roll closing costs into the loan?
Rolling them in keeps cash in your pocket, but it raises the balance, the payment and the total interest. Paying them in cash does the opposite. Compare both versions on your Loan Estimate.
Does a cash-out refinance add a second mortgage?
No. It replaces your existing mortgage with one new loan. A home equity loan or HELOC adds a second mortgage on top of the first.
Is the interest on my cash-out loan deductible?
Whether interest is deductible can depend on your situation and on how the loan proceeds are used. Borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Your Next Step
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Run the formula both ways first, then compare the result to the Loan Estimate you receive.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
2. CFPB: When can I remove PMI from my loan?
3. CFPB: Using your home equity guide
5. CFPB’s cash-out research release
6. Fannie Mae Announcement SEL-2025-08
7. Fannie Mae Selling Guide B2-1.3-03 (earlier version)
8. HUD
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Should You Use a Cash-Out Refinance Before Your ARM Resets? · How to Pick Which Loans to Fold Into One Cash-Out Refinance Payment · Cash-Out Refinance Cancellation Rules for a Low First Mortgage
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.