How much equity do I need to refinance?

Most conventional refinances want at least 20% equity, though rate-and-term refinances can sometimes go higher on LTV with mortgage insurance. Cash-out is usually capped at 80% LTV.

What is the difference between a HELOC and a cash-out refinance?

A cash-out refinance replaces your mortgage with a larger one at a new fixed rate. A HELOC is a second, usually variable-rate revolving line that leaves your first mortgage untouched.

Is a lower rate always worth refinancing for?

Not necessarily. If closing costs take four years to recover and you plan to sell in two, you lose money. Compare the break-even month against how long you will stay.

Why did my total interest go up after refinancing?

Restarting the clock at 30 years spreads a smaller payment over more months. Refinancing into a term that matches your remaining years avoids this.

What are typical closing costs?

Roughly 2–5% of the loan amount, covering origination, appraisal, title insurance, recording and prepaid escrow items.

Real Estate Finance

Home Equity / Refinance Calculator

Available equity, new payment and refinance break-even.

Inputs

Given

Current home value

Current loan balance

Current rate

Years remaining

yrs

New rate

New term

yrs

Cash taken out

Closing costs

Results

Computed

Monthly savings

$389.01

Break even on closing costs in 16 months

Available equity$200,000

Equity share of value40.0%

Cash out available at 80% LTV$100,000

Current payment$2,168.42

New payment$1,779.41

New loan amount$300,000

New loan-to-value60.0%

Remaining cost of current loan$650,526

Total cost of new loan$646,587

Extending the term lowers the payment but can raise lifetime interest even at a lower rate. Compare the total-cost rows, not just the monthly figure.

$389/mo saved · $200,000 equity

How this is calculated

Home equity is simply what the property is worth less what you still owe. Lenders express your borrowing headroom as a loan-to-value ratio and most cash-out programs stop at 80%.

equity = home value − loan balance

max cash out = home value × 0.80 − current balance

Both the current and proposed payments use the standard amortizing formula, the current one over the years you have left and the new one over the full new term:

payment = P × r ÷ (1 − (1 + r)^−n)

The break-even point tells you how long you must stay to recover the closing costs:

break-even months = closing costs ÷ monthly savings

A refinance that saves money each month can still cost more overall if it resets a partly paid loan back to a fresh 30-year term. The total-cost rows compare the remaining cost of keeping your current loan against the full cost of the new one including closing costs.

Worked example

Does a refinance pay for itself?

You owe $380,000 at 6.9% with 24 years left; a new 25-year loan is offered at 5.4% with $6,500 in closing costs.
Current P&I ≈ $2,735/mo; new P&I ≈ $2,310/mo — savings ≈ $425/mo.
Break-even = 6,500 ÷ 425 ≈ month 16.
If you will keep the home longer than 16 months, the refinance recovers its cost; the 8 years beyond break-even save about $40,000.
Resetting to a fresh 25-year term adds interest years — check total interest, not just the monthly drop.

Common mistakes

Ignoring the term reset
Refinancing 22 remaining years into a new 30-year loan can lower the payment while raising total interest. Compare total cost over the period you actually expect to hold the loan.
Rolling costs in without noticing
'No closing cost' refinances either charge a higher rate or add the costs to the balance. Both are real costs — include them in the break-even math.
Borrowing the maximum available equity
Lenders may offer 80% of value; taking it all removes the buffer against a price dip. Size the cash-out to a specific purpose, not to the ceiling.