80% LTV vs 75% LTV Cash-Out Refinancing: I Ran the Math on Both—Here's Which Saved Me $18,400

I was choosing between 80% LTV and 75% LTV for cash-out refinancing. The difference seemed simple: 80% LTV gave me $31,000 more cash-out access.

But my loan officer showed me something crucial: 75% LTV came with 0.375% lower interest rate. That rate discount saved me $18,400 over 5 years—but I had to sacrifice $31,000 in immediate cash-out access.

Which option was better? It depends entirely on how much cash-out you actually need.

I spent three weeks running the complete math on both LTV scenarios. Here’s my detailed comparison showing cash-out access differences, rate impact over time, monthly payment variations, equity cushion analysis, and exactly when 75% LTV optimization saves money versus when 80% LTV maximum access makes more sense.

My Home Equity Position and Refinancing Need

My situation:

• Home value: $520,000 (recent appraisal)
• Current mortgage: $312,000 at 4.5%
• Current payment: $1,581/month (P&I)
• Total equity: $208,000 (40%)
• Credit score: 735 (excellent tier)

I needed approximately $55,000 for two purposes:

• Home renovations: $42,000 (kitchen and master bath remodel)
• Emergency fund: $13,000 (6-month reserve)

With $208,000 total equity, I clearly had enough for my needs. The question was: should I maximize cash-out at 80% LTV or optimize rates at 75% LTV?

80% LTV Scenario: Maximum Cash-Out Access

80% LTV refinancing quote:

• Maximum loan: $520,000 × 0.80 = $416,000
• Current mortgage payoff: $312,000
• Gross cash-out: $104,000
• Closing costs: $9,100
• Net cash-out: $94,900

Interest rate and payment:

• Rate: 6.875% (standard 80% LTV cash-out rate for 735 credit)
• New monthly payment: $2,738 (P&I)
• Payment increase: $1,157/month from current $1,581

Remaining equity:

• Home value: $520,000
• New loan balance: $416,000
• Remaining equity: $104,000 (20%)
• Equity percentage: 20% (minimum)

Total interest over 5 years:

• Interest paid: $139,800
• Monthly average: $2,330

The 80% LTV option gave me $94,900 net cash-out—far exceeding my $55,000 need. I’d have $39,900 excess beyond my requirements. But what about the 75% LTV alternative?

75% LTV Scenario: Rate Discount Optimization

75% LTV refinancing quote:

• Maximum loan: $520,000 × 0.75 = $390,000
• Current mortgage payoff: $312,000
• Gross cash-out: $78,000
• Closing costs: $8,700 (slightly lower on smaller loan)
• Net cash-out: $69,300

Interest rate and payment:

• Rate: 6.50% (0.375% lower than 80% LTV)
• New monthly payment: $2,467 (P&I)
• Payment increase: $886/month from current $1,581

Remaining equity:

• Home value: $520,000
• New loan balance: $390,000
• Remaining equity: $130,000 (25%)
• Equity percentage: 25%

Total interest over 5 years:

• Interest paid: $128,190
• Monthly average: $2,137

The 75% LTV option gave me $69,300 net cash-out—still exceeding my $55,000 need with $14,300 cushion. But I sacrificed $25,600 in potential access compared to 80% LTV.

The Complete Financial Comparison: 80% vs 75% LTV

Let me break down every financial difference:

Cash-out access comparison:

• 80% LTV: $94,900 net
• 75% LTV: $69,300 net
• Difference: $25,600 less cash-out at 75% LTV

My need was $55,000. Both scenarios exceeded my requirement, but 80% LTV provided $39,900 excess while 75% LTV provided only $14,300 excess.

Interest rate comparison:

• 80% LTV: 6.875%
• 75% LTV: 6.50%
• Difference: 0.375% lower rate at 75% LTV

Monthly payment comparison:

• 80% LTV: $2,738/month
• 75% LTV: $2,467/month
• Difference: $271/month lower at 75% LTV

Total interest comparison (5 years):

• 80% LTV: $139,800
• 75% LTV: $128,190
• Difference: $11,610 less interest at 75% LTV over 5 years

Remaining equity comparison:

• 80% LTV: $104,000 (20%)
• 75% LTV: $130,000 (25%)
• Difference: $26,000 more equity cushion at 75% LTV

The 75% LTV option sacrificed $25,600 in cash-out access but saved $11,610 in interest over 5 years, reduced monthly payment by $271, and maintained $26,000 additional equity cushion.

My Decision Matrix: Which LTV to Choose

I created a decision framework based on my actual cash-out needs:

Scenario A: I need exactly $55,000 (my real situation)

75% LTV provides $69,300 net = $14,300 excess (26% buffer)

• Sufficient for needs with cushion
• Saves $11,610 interest over 5 years
• Saves $271/month payment
• Winner: 75% LTV ✅

Scenario B: I need $75,000 (higher requirement)

75% LTV provides $69,300 net = INSUFFICIENT ($5,700 shortfall) 80% LTV provides $94,900 net = $19,900 excess (26% buffer)

• Only 80% LTV meets needs
• Higher interest cost justified by necessity
• Winner: 80% LTV ✅

Scenario C: I need $90,000 (maximum requirement)

75% LTV provides $69,300 net = INSUFFICIENT ($20,700 shortfall) 80% LTV provides $94,900 net = $4,900 excess (5% buffer)

• Only 80% LTV sufficient
• Minimal buffer but meets needs
• Winner: 80% LTV ✅

Scenario D: I need $40,000 (lower requirement)

75% LTV provides $69,300 net = $29,300 excess (73% buffer) 80% LTV provides $94,900 net = $54,900 excess (137% buffer)

• Both provide massive excess
• 75% LTV saves $11,610 with no downside
• Winner: 75% LTV ✅

The key insight: If 75% LTV provides sufficient cash-out for your needs, the rate savings always make it better than 80% LTV. Only choose 80% LTV when you actually need that maximum access.

Calculating Your Break-Even Point

At what cash-out need does 80% LTV become necessary?

For my $520K home value:

• 75% LTV net cash-out: $69,300
• If I need more than $69,300, I must use 80% LTV
• If I need $69,300 or less, 75% LTV saves money

Break-even calculation formula:

• Home value × 0.75 = Max loan at 75% LTV
• Max loan - Current mortgage - Closing costs = Net cash-out at 75% LTV
• If your need ≤ Net cash-out at 75% LTV, choose 75% LTV
• If your need > Net cash-out at 75% LTV, choose 80% LTV

For your situation:

1. Calculate 75% LTV net cash-out: (Home value × 0.75) - Current mortgage - (2% closing costs)
2. Compare to your actual cash-out need
3. If 75% LTV insufficient, move to 80% LTV
4. If 75% LTV sufficient, calculate interest savings over 5 years

My $55,000 need was well below the $69,300 available at 75% LTV, making 75% LTV the clear winner with $11,610 in interest savings.

Rate Discount Analysis: Why Does 75% LTV Get Better Rates?

Lenders price risk. Lower LTV = lower risk = better rates.

Risk factors at different LTV levels:

80% LTV (higher risk):

• Only 20% equity cushion
• If home value declines 20%, borrower is underwater
• Foreclosure recovery risk higher
• Lenders charge premium for risk: +0.25% to +0.50% rate increase

75% LTV (lower risk):

• 25% equity cushion
• Home value can decline 25% before underwater
• Better foreclosure recovery position
• Lenders reward lower risk: 0.25% to 0.50% rate discount

70% LTV (lowest risk):

• 30% equity cushion
• Even better rates (typically 0.125% better than 75%)
• But sacrifices significant cash-out access
• Rarely optimal unless you need very little cash-out

In my case, the 0.375% rate discount at 75% LTV ($26K less access) versus 80% LTV ($26K more access) translated to:

• $271/month payment savings
• $11,610 total interest savings over 5 years
• $26,000 additional equity protection

The rate discount was absolutely worth sacrificing cash-out access I didn’t need.

Equity Cushion Risk Management

Beyond rate savings, the equity cushion difference matters:

80% LTV equity position:

• Remaining equity: $104,000 (20%)
• If home value drops 10% to $468K: Equity = $52,000 (11%)
• If home value drops 20% to $416K: Equity = $0 (underwater)
• Risk: Minimal margin for value decline

75% LTV equity position:

• Remaining equity: $130,000 (25%)
• If home value drops 10% to $468K: Equity = $78,000 (17%)
• If home value drops 20% to $416K: Equity = $26,000 (6%)
• Protection: Can withstand 20% value decline without going underwater

I live in a stable market with consistent appreciation, but housing markets can shift. The $26,000 additional equity cushion at 75% LTV provides peace of mind and financial protection if market conditions change.

Real-world example from 2008-2012: Many homeowners with 80% LTV cash-out refinancing went underwater during housing crisis (20-40% value declines in many markets). Those at 75% LTV had better survival rates and avoided strategic defaults.

The 5% extra equity cushion isn’t just about numbers—it’s financial security.

My Personal Decision: I Chose 75% LTV

Why I chose 75% LTV refinancing:

Reason 1: Sufficient cash-out for my needs

• Needed: $55,000
• 75% LTV provided: $69,300 net
• Excess buffer: $14,300 (26%)
• No reason to access more equity I didn’t need

Reason 2: $11,610 interest savings over 5 years

• 0.375% rate discount adds up significantly
• $271/month payment savings
• Better cash flow management

Reason 3: Stronger equity position

• $130,000 remaining equity (25%) vs $104,000 (20%)
• Better protection against market downturns
• More flexibility for future refinancing if needed

Reason 4: Lower monthly payment

• $2,467/month vs $2,738/month at 80% LTV
• $271/month savings reduces financial stress
• Easier to manage if income interruption occurs

Reason 5: Alignment with long-term goals

• Not planning to access more equity in near term
• Building equity over time is priority
• Conservative financial approach fits my risk tolerance

The 75% LTV option aligned perfectly with my actual needs while saving money and reducing risk. No reason to maximize cash-out access just because I could.

When to Choose 80% LTV Despite Higher Costs

80% LTV makes sense in these situations:

1. You need close to maximum cash-out available

• Example: 75% LTV provides $70K but you need $85K
• The extra access is necessary, rate discount irrelevant
• Use cash-out refinancing calculators to determine maximum access

2. Future appreciation expected to offset LTV quickly

• Rapidly appreciating market (10-15% annual)
• 80% LTV today becomes 72% LTV in 12-18 months
• Short-term higher LTV acceptable given trajectory

3. Investment use with high ROI

• Using funds for rental property (10%+ ROI)
• Business expansion (15%+ ROI)
• Returns exceed interest rate difference
• Maximum leverage makes financial sense

4. Time-sensitive opportunity

• Business acquisition opportunity
• Real estate purchase requiring fast action
• Maximizing access outweighs rate optimization

5. No rate discount offered at 75% LTV

• Some lenders don’t discount 75% LTV
• If rate is same at 75% and 80%, maximize access
• Compare multiple lenders at Browse Lenders

In my situation, none of these applied. I didn’t need maximum access, had no time pressure, and the 0.375% rate discount was significant enough to choose 75% LTV.

10 Months Later: Was 75% LTV the Right Choice?

10 months after 75% LTV refinancing:

• Loan balance: $387,200 (paid down $2,800)
• Monthly payment: $2,467 (as expected)
• Home value: $538,000 (continued appreciation)
• Current equity: $150,800 (28%)
• Interest savings vs 80% LTV: $9,685 so far
• Kitchen and bath renovations: Complete (added $35K+ home value)

If I’d chosen 80% LTV:

• Loan balance: $413,200
• Monthly payment: $2,738
• Home value: $538,000
• Current equity: $124,800 (23%)
• Extra interest paid: $9,685 more than my 75% LTV
• Unused cash-out sitting in savings: $39,900

The 75% LTV choice was absolutely correct. I’m saving $271/month, have already saved $9,685 in interest, and maintained $26,000 additional equity. The $39,900 excess cash-out I would’ve received at 80% LTV would be sitting unused in savings earning 1-2% while costing me 6.875% on the mortgage—negative arbitrage.

My renovations added approximately $35,000 in home value, partially offsetting the $69,300 I accessed. My current LTV is down to 72% ($387K loan ÷ $538K value) from the original 75% due to paydown and appreciation.

The LTV Optimization Calculator Framework

Here’s the framework I used to decide:

Step 1: Calculate net cash-out at both LTV levels

• 80% LTV: (Home value × 0.80) - Current mortgage - Closing costs
• 75% LTV: (Home value × 0.75) - Current mortgage - Closing costs

Step 2: Compare to your actual need

• If 75% LTV insufficient: Choose 80% LTV (no choice)
• If 75% LTV sufficient: Continue to Step 3

Step 3: Calculate rate discount savings

• Payment difference per month × 12 months × 5 years
• Typically saves $8K-15K over 5 years at 0.25-0.50% discount

Step 4: Evaluate equity cushion value

• How important is 5% additional equity to your risk tolerance?
• Planning to refinance again in 2-3 years? (More equity helpful)
• Concerned about market downturn? (Extra cushion valuable)

Step 5: Make decision

• If 75% LTV sufficient + rate savings + extra cushion align: Choose 75% LTV
• If you need maximum access or no rate discount: Choose 80% LTV

Understanding your middle credit score is critical too—higher scores get better rate discounts at 75% LTV, making the optimization more valuable.

The Bottom Line on LTV Optimization

75% LTV cash-out refinancing saved me $18,400 over 5 years ($11,610 interest + $6,790 from lower balance) compared to 80% LTV, despite sacrificing $25,600 in cash-out access I didn’t need. The 0.375% rate discount, $271/month lower payment, and $26,000 additional equity cushion made 75% LTV the clear winner for my $55,000 refinancing need on a $520,000 home.

Key LTV optimization lessons:

• Only maximize to 80% LTV if you actually need maximum cash-out access
• 75% LTV rate discounts (0.25-0.50%) save $8K-15K over 5 years
• Extra 5% equity cushion provides meaningful downside protection
• Calculate break-even: If 75% LTV meets needs, choose it for rate savings
• Don’t access excess equity just because you can—it costs money

Connect with LTV optimization specialists at Browse Lenders who can model multiple LTV scenarios, show rate discount impacts, calculate total costs over time, and help you determine whether 75% or 80% LTV cash-out refinancing makes more financial sense for your specific equity access needs and long-term goals.

Have questions about 80% versus 75% LTV cash-out refinancing and LTV optimization strategies? Contact our team at support@browselenders.com for personalized analysis of your LTV options.