I Used Cash-Out Refinance for My Kitchen Remodel: Here's What It Actually Cost

Our kitchen was stuck in 1992. Laminate countertops, oak cabinets with brass hardware, linoleum floors, and fluorescent lighting. After 8 years of living with it, we finally decided: it’s time for a complete renovation.

Budget for our dream kitchen: $62,000 (new cabinets, quartz countertops, tile backsplash, stainless appliances, hardwood floors, recessed lighting, plumbing and electrical updates).

We had three financing options:

Option 1: Home equity line of credit (HELOC) – variable rate, currently 8.50%, interest-only payments, 10-year draw period
Option 2: Personal home improvement loan – fixed rate 10.25%, 7-year term, no collateral required
Option 3: Cash-out refinance – replace our existing mortgage, pull out cash for renovations, fixed rate

We chose cash-out refinance—and it was the smartest financial decision we made.

Here’s the full breakdown of costs, savings, and lessons learned from using cash-out refinance to fund our kitchen remodel.

Our Financial Situation (Before the Remodel)

Home value: $425,000
Existing mortgage balance: $280,000
Interest rate on existing mortgage: 5.875% (locked in 2019)
Monthly payment (P&I): $1,657
Home equity: $145,000 (34% equity)
Needed for kitchen: $62,000

Option 1: HELOC (What We Considered First)

Our bank offered a HELOC at 8.50% variable rate (prime + 0.25%).

Borrowing $62,000 on a HELOC:

• Interest-only payment: $443/month (at 8.50%)
• No closing costs (bank waived fees)
• 10-year draw period, 20-year repayment

Sounds simple, right? Borrow $62,000, pay $443/month interest-only, keep our low 5.875% mortgage.

The problem: Variable rates. If rates rose to 10%, our payment would jump to $517/month. If rates hit 12% (not unheard of in high-inflation periods), our payment would be $620/month.

Plus, after the 10-year draw period ends, we’d have to start repaying principal—jumping our payment to $600-700+/month depending on the remaining balance and rate.

We passed.

Option 2: Personal Home Improvement Loan (Too Expensive)

Our credit union offered a personal home improvement loan at 10.25% fixed for 7 years.

Borrowing $62,000:

• Monthly payment: $916
• Total interest paid over 7 years: $14,752
• No closing costs, no collateral

This felt expensive. Paying $916/month just for the kitchen remodel (on top of our $1,657 mortgage payment) would strain our budget.

We passed.

Option 3: Cash-Out Refinance (What We Chose)

Our loan officer suggested cash-out refinance: replace our existing $280,000 mortgage with a new $342,000 mortgage (enough to pay off the old loan + pull out $62,000 for renovations).

New mortgage details:

• Loan amount: $342,000 ($280,000 payoff + $62,000 cash-out)
• Interest rate: 6.25% (30-year fixed)
• New monthly payment (P&I): $2,106
• Closing costs: $6,200 (appraisal, title, origination, escrow setup)

At first, I balked. “Our new payment is $449/month higher than before. How is this a good deal?”

My loan officer showed me the math—and it changed my perspective.

The Math: Why Cash-Out Refi Beat HELOCs and Personal Loans

Total Monthly Cost Comparison

Option 1 (HELOC at 8.50%):

• Existing mortgage payment: $1,657
• HELOC interest-only payment: $443
• Total monthly cost: $2,100
• Risk: Variable rate could increase to $2,200-$2,300+/month if rates rise

Option 2 (Personal loan at 10.25%):

• Existing mortgage payment: $1,657
• Personal loan payment: $916
• Total monthly cost: $2,573

Option 3 (Cash-out refinance at 6.25%):

• New mortgage payment: $2,106
• Total monthly cost: $2,106 (everything in one payment)

Cash-out refi was cheaper than both alternatives—and it locked in a fixed rate for 30 years (no variable rate risk like the HELOC).

Lifetime Interest Savings

Here’s where it gets even better.

Our old mortgage at 5.875%:

• Remaining balance: $280,000
• Remaining term: 23 years
• Total interest we’d pay over remaining life: $166,400

New mortgage at 6.25%:

• New balance: $342,000
• New term: 30 years
• Total interest we’ll pay: $415,080

Wait—that’s $248,680 MORE in interest over 30 years! How is this a good deal?

Here’s the key: we’re comparing 23 years of our old loan vs. 30 years of the new loan. We reset the clock to 30 years, which means we’re paying interest longer.

But here’s what we saved:

If we’d used a HELOC at 8.50% and kept our existing mortgage, we’d pay:

• $166,400 in interest on the existing mortgage (remaining 23 years)
• $49,120 in interest on the HELOC (if we paid it off over 10 years at $670/month)
• Total: $215,520 in interest

If we’d used a personal loan at 10.25%, we’d pay:

• $166,400 in interest on the existing mortgage
• $14,752 in interest on the personal loan (7-year term)
• Total: $181,152 in interest

With cash-out refinance at 6.25%, we’ll pay:

• $415,080 in total interest over 30 years

Wait—that still sounds like more!

But here’s the catch: we won’t keep the loan for 30 years. Most homeowners refinance or sell within 7-12 years.

The 10-Year Comparison (More Realistic)

Let’s assume we keep the loan for 10 years, then either refinance or sell.

Option 1 (HELOC):

• Mortgage interest (10 years): $71,200
• HELOC interest (10 years at 8.50%): $41,500
• Total interest: $112,700

Option 2 (Personal loan):

• Mortgage interest (10 years): $71,200
• Personal loan interest (7 years): $14,752
• Total interest: $85,952

Option 3 (Cash-out refi):

• New mortgage interest (10 years at 6.25%): $129,400

Over 10 years:

• Cash-out refi costs $16,700 more than HELOC
• Cash-out refi costs $43,448 more than personal loan

So why did we choose cash-out refi if it costs more?

Why We Still Chose Cash-Out Refinance

1. Rate Security and Predictability

The HELOC started at 8.50%, but it’s variable. If rates rose to 10-12% (which happens during inflation), our payment would spike by $100-200/month.

Cash-out refi locked in 6.25% for 30 years. No surprises. No rate risk.

Peace of mind is worth paying a little more.

2. Lower Monthly Payment Than Personal Loan

The personal loan would’ve cost us $916/month on top of our mortgage.

Cash-out refi increased our payment by only $449/month—half the cost of the personal loan monthly.

Cashflow matters. We’d rather pay $449 more per month for 30 years than $916 more per month for 7 years.

3. Tax Deductibility (Maybe)

Mortgage interest is tax-deductible (up to $750,000 in mortgage debt for married couples filing jointly).

HELOC and personal loan interest is not deductible unless used for home improvements—and even then, the rules are complicated.

Our accountant confirmed: cash-out refi interest is fully deductible (up to the limit).

Tax savings: roughly $1,200/year in our tax bracket.

Over 10 years, that’s $12,000 in tax savings—which offsets much of the extra interest we’re paying.

4. We’d Refinance Eventually Anyway

Interest rates in 2019 (when we bought): 5.875%
Interest rates in 2023 (when we refinanced): 6.25%

Yes, our rate went up 0.375%—but rates had spiked from 3% in 2021 to 7%+ in late 2022. By waiting until 2023, we caught rates on the way back down.

If rates drop to 5.00-5.50% in the next few years, we’ll refinance again (and our kitchen will already be paid for).

We viewed the 6.25% rate as temporary—not a 30-year commitment.

The Real Cost of Our Kitchen Remodel

Kitchen renovation: $62,000
Cash-out refi closing costs: $6,200
Total financed: $68,200

Monthly payment increase: $449/month
Annual cost: $5,388/year

Over 5 years (before we refinance or sell): $26,940 in extra payments (principal + interest)

But our home value increased by $85,000 after the kitchen remodel (appraised at $510,000 after renovations, up from $425,000).

Net gain: $58,060 in equity ($85,000 appreciation minus $26,940 in extra payments)

We essentially paid $26,940 to gain $85,000 in home value. That’s a 216% return on investment.

How Your Credit Score Affects Cash-Out Refinance Rates

Your middle credit score determines your cash-out refi rate.

My score: 712 when I applied.

Cash-Out Refi Rate Tiers

• 760+ score: Best pricing (6.00% in our example)
• 740-759 score: +0.125% adjustment (6.125%)
• 720-739 score: +0.25% adjustment (6.25%)
• 700-719 score: +0.375% adjustment (6.375%)
• 680-699 score: +0.625% adjustment (6.625%)

If my score had been 740+ instead of 712, I’d have gotten 6.125% instead of 6.25%.

That 0.125% difference would save me $29/month or $10,440 over 30 years.

Lesson learned: If your score is below 720, spend 3-6 months improving it before applying for cash-out refinance. Every 20-40 points matters.

When Cash-Out Refinance Makes Sense for Renovations

Choose Cash-Out Refi If:

✅ You have 20%+ equity (most lenders require 20% equity remaining after cash-out)
✅ Current rates are within 0.50-1.00% of your existing rate (or lower)
✅ You want a fixed rate (no variable rate risk)
✅ You’re pulling out $50,000+ (makes closing costs worthwhile)
✅ You value cashflow flexibility (lower monthly payment than personal loans)
✅ You plan to stay in the home 5+ years (or refinance when rates drop)

Don’t Use Cash-Out Refi If:

❌ Current rates are 1.50%+ higher than your existing rate (you’ll pay way more in interest)
❌ You have less than 20% equity (won’t qualify or will face high PMI costs)
❌ You’re pulling out less than $30,000 (closing costs eat into savings)
❌ You plan to sell within 2-3 years (not enough time to recoup closing costs)

Cash-Out Refi vs. HELOC vs. Home Improvement Loan: The Verdict

Best for most renovations: Cash-out refinance (if rates are reasonable and you have 20%+ equity)

Best if you have a low existing rate: HELOC (keep your low-rate mortgage, borrow separately—but watch variable rates)

Best for small projects under $30,000: Home improvement loan (avoid refinancing your entire mortgage for a small amount)

Final Thoughts: Our Kitchen Was Worth Every Penny

We spent $62,000 (financed through cash-out refinance) to transform our outdated 1992 kitchen into a modern, functional space we love.

Costs:

• Cash-out refi closing costs: $6,200
• Increased monthly payment: $449/month
• Extra interest over 5 years: ~$13,000

Benefits:

• Fixed 6.25% rate (no variable rate risk)
• Lower monthly cost than HELOC or personal loan
• Tax-deductible mortgage interest
• Home value increased $85,000
• We LOVE our new kitchen

Net gain: $58,000+ in equity after 5 years, plus the joy of cooking in a beautiful kitchen every day.

Connect with renovation financing experts through Browse Lenders to compare cash-out refinance, HELOCs, and home improvement loan options for your renovation project.

Cash-out refinance isn’t always the cheapest option—but it was the smartest option for us. Lower monthly payments, fixed rate, tax advantages, and we got our dream kitchen.

Sometimes paying a little more for peace of mind and cashflow flexibility is worth it.