Cash-Out Refinance on $250,000 at a Higher Rate: How to Judge It
Trading a 5.5% mortgage for a 6% one raises the payment, so break-even does not apply. See what to measure instead when the point is the cash.
Current loan balance $250,000 · Current interest rate 5.5% · Years left on current loan 22 years · +3 moreYour figuresEdit figures
What you still owe today
The rate you pay now
Years still to run
The rate you are offered
Years the new loan runs
Fees to complete the refinance
Break-even point
This refinance never breaks even. The new payment is not lower, so there are no savings to earn the closing costs back with.
The new payment is not lower — this refinance never breaks even.
- Break-even point
- Never
- Monthly saving
- -$73
- Lifetime interest saved
- -$19,289
- Saving after closing costs
- -$24,789
Over the years each loan still has to run, refinancing costs $24,789 MORE once the $5,500 of closing costs is counted — whatever the monthly payment does.
| Scenario | Keep current loanBetter | Refinance |
|---|---|---|
| Years still to pay | 22 | 22 |
| Monthly payment | $1,635 | $1,708 |
| Interest over those years | $181,540 | $200,829 |
| Closing costs | $0 | $5,500 |
| Interest + closing costs | $181,540 | $206,329 |
Method: Standard fixed-rate amortization, compared scenario against scenario
- Both loans are fixed rate with monthly compounding, and neither rate ever changes.
- The new loan equals your current balance: no cash taken out, and closing costs paid at settlement rather than rolled in.
- Property tax, hazard insurance and mortgage insurance are excluded, and no early payoff or missed payment is modelled.
- No tax table is used. Figures are estimates for comparison, not a lender quote or tax advice.
No tax rates are used in this calculation.
This is an estimate, not financial or tax advice. Confirm figures with the linked source or a licensed professional before acting on them.
When the point is the cash, break-even is the wrong test
A cash-out refinance replaces a loan you like with a larger loan you like less, and hands you the difference. Giving up a five and a half percent rate to take six is a real cost, paid every month for as long as the new loan runs, and it is paid on the entire balance rather than only on the cash you withdrew. That last point is the one people miss. You are not borrowing the cash at six percent. You are re-pricing the whole two hundred and fifty thousand dollars at six percent in order to get it.
Because the payment rises rather than falls, there is no break-even to compute, and the absence is not a defect in the calculation. Break-even answers "how long until the monthly saving repays the fees", and here there is no monthly saving. Any lender who quotes you a break-even on a cash-out at a higher rate is quoting a number that does not describe the transaction.
What replaces it is a comparison against alternatives. The honest question is: what is the cheapest way to get this money, given everything it does to the rest of my balance sheet? A home equity line leaves your existing rate untouched and prices only the borrowed amount, usually at a higher and often variable rate. A second mortgage does something similar at a fixed rate. A cash-out refinance is frequently the cheapest per dollar borrowed if you need a large sum, and frequently the most expensive if you need a small one, precisely because of the re-pricing effect on the untouched balance.
The other half of the question is what the money is for. Borrowing against a house to fund something that lasts — a renovation that raises the property's value, retiring debt at a materially higher rate, an expense that would otherwise go on credit cards — is a different decision from borrowing against it to fund something that does not. The loan is secured by the place you live, and that is the risk no interest-rate comparison contains.
How to price the cash you are actually taking out
Model it as two loans rather than one, because that is what it is. The first is the balance you already had, which was costing you five and a half percent and will now cost six; the increase on that portion is a pure cost of the transaction and buys you nothing. The second is the new money, which costs six percent from the start. Adding the two together and dividing by the cash you received gives you an effective rate on the withdrawal that is considerably higher than the headline rate, and that effective rate is the number to compare against a home equity line or a second mortgage.
You can approximate the first component on this page directly. Run your existing balance and term at your current rate against the same balance and term at the new rate, with the closing costs included and no cash added. The increase in total interest that appears is the price of re-pricing the debt you already had. Whatever you were planning to do with the cash needs to be worth at least that much before the withdrawal itself is even considered.
Two practical points that the arithmetic will not raise. Cash-out refinances are typically priced slightly above rate-and-term refinances for the same borrower, so part of the gap you are seeing may be the cash-out premium rather than the market; ask the lender to quote both so you can see it separately. And the interest deductibility rules for cash-out proceeds in the United States depend on what the money is spent on rather than on the loan itself, which is a tax question outside this calculator's scope and worth putting to someone qualified before you assume an offsetting benefit.
What closing costs include
The closing cost figure you enter should be everything you pay to get the new loan, whether it comes out of your pocket at settlement or is added to the balance. Typical components are the lender's origination or underwriting fee, discount points if you bought the rate down, an appraisal, a credit report, title search and title insurance, settlement or attorney fees, recording fees and any state or local transfer tax that applies to a refinance. On a mid-size loan the total commonly lands somewhere between two and five percent of the amount refinanced, which is why the break-even is measured in years rather than months.
Two items deserve care. A no-closing-cost refinance is not free — the fees are paid through a higher rate instead, so enter zero costs and the higher rate you were actually quoted, and compare that against the version with costs and the lower rate. And rolling the fees into the balance does not remove them either; it borrows them at the mortgage rate for the whole term. This calculator assumes the costs are paid at settlement and the new loan equals your current balance, so that the break-even figure is attributable to one thing at a time.
Prepaid interest, escrow deposits for taxes and insurance, and any refund of your old escrow account are transfers of timing rather than costs of the refinance, and are best left out of the number you enter here.
How to read your result
The headline is the number of whole months before the accumulated saving equals the closing costs, rounded up, because a partial month has not finished paying anything back. Compare it against your own horizon first. If you expect to keep the loan comfortably longer than the break-even, the refinance is doing what it is supposed to. If the two numbers are close, the decision is much finer than the rate difference makes it look, and small differences in the fee quote will decide it.
Beneath the headline, the monthly saving tells you how quickly the clock runs, and the two interest figures tell you what the whole loan costs under each scenario. If the lifetime interest saved is negative, read that as the price of the lower payment rather than as a reason to stop, and decide whether the cash flow is worth it.
Every figure here is an estimate from the six values you entered. It assumes a fixed rate on both loans, no cash taken out, no change to property tax, hazard insurance or mortgage insurance, and no early payoff. A lender's own quote will differ where any of those assumptions differ, and it is the written offer that governs. Change any input and the page recalculates immediately with no reload, and the link at the top of the result carries your scenario so you can send it to someone else and have them open the same numbers.
Frequently asked questions
Why is there no break-even on a cash-out refinance?
Break-even measures how many months of lower payments it takes to repay the closing costs. A cash-out at a higher rate produces a higher payment, not a lower one, so there is no saving for the fees to be repaid out of and no month at which the transaction catches up. That is not a flaw in the calculation; it is the correct description of a transaction whose purpose is the cash rather than a smaller payment. Judge it against borrowing alternatives instead.
Is a cash-out refinance cheaper than a home equity line of credit?
It depends heavily on how much you need. A home equity line prices only the amount you borrow and leaves your existing mortgage rate untouched, which matters a great deal when the rate you hold is below current market. A cash-out re-prices the entire balance, so the effective cost of the withdrawal is much higher than the quoted rate. For large sums the refinance often still wins on rate; for smaller ones the line of credit frequently does.
How is the refinance break-even point calculated?
Divide the total closing costs by the monthly saving, where the saving is your current principal and interest payment minus the payment on the proposed loan. The result is the number of months of lower payments needed before the accumulated saving equals what the refinance cost. This page rounds up to a whole month, because a partial month has not finished paying anything back, and it ignores what you could have earned on the fees had you invested them instead.
What if my monthly payment does not go down at all?
Then there is no break-even point, and this calculator says so in words instead of printing a zero or a negative month count. It usually happens when the new term is shorter than the years you have left, so the balance is compressed into fewer payments, or when the rate improvement is too small to offset that compression. A shorter term is not necessarily a bad deal, but it is not a cash-flow saving, so break-even is the wrong test for it.
Why can a lower payment still cost me more in the end?
Because resetting the term adds years of interest. Interest accrues on the outstanding balance every month it stays outstanding, so replacing twenty-two remaining years with a fresh thirty-year loan adds eight more years of it. That addition often exceeds everything the lower rate saved. The result on this page shows the interest under each scenario separately and the difference as a signed figure, so a negative saving is visible rather than hidden behind a smaller monthly number.
Should I include the closing costs if they are rolled into the loan?
Yes, enter them as closing costs. Rolling the fees into the balance does not make them disappear; it borrows them at the mortgage rate for the whole term, which costs more than paying them at settlement, not less. This calculator assumes the new loan equals your current balance and the costs are paid up front, so that the break-even figure can be attributed to one variable at a time. Treat a rolled-in quote as slightly optimistic here.
Is a no-closing-cost refinance a better deal?
It is the same deal priced differently. The lender covers the fees and recovers them through a higher interest rate over the life of the loan, so your break-even is immediate but your monthly saving is smaller and your lifetime interest is higher. Run the calculation both ways: once with zero costs at the higher quoted rate, once with the real costs at the lower rate, and compare the lifetime interest figures over the years you actually expect to stay.
How long do I need to stay for a refinance to be worth it?
Longer than the break-even point, with room to spare. If the calculation says thirty-one months and you might move in three years, the margin is too thin to be worth the disruption, since a sale or another refinance stops the clock and any unrealised months of saving simply never happen. As a rule of thumb, look for a break-even comfortably shorter than half the time you confidently expect to keep both the house and the loan.