Equity Home Refinance vs Personal Loan: Compare Costs

This calculator compares the estimated monthly payments and total interest for a home-equity refinance and a personal loan using the amounts, APRs, and terms you enter. It assumes fixed rates and equal monthly payments; the results do not include lender fees or other costs, so use actual loan disclosures for a full comparison.

Formula

The payment formula is M = P × r / [1 − (1 + r)⁻ⁿ]. Here, M is the monthly payment in dollars, P is the amount borrowed in dollars, r is the monthly interest rate as a decimal (APR ÷ 1,200), and n is the number of monthly payments (years × 12). Total interest is I = M × n − P, where I is in dollars. The payment is shown rounded to cents, and total interest uses that rounded payment.

Run the calculator separately for each option, entering the amount, APR, and term for that loan. To compare the same amount of borrowing, use the same principal in both runs. If the refinance would pay off an existing mortgage as well as fund a project, its full new loan balance—not just the cash received—may be the relevant principal for evaluating the new payment and interest.

Worked Example

Using the calculator’s defaults: principal P = $20,000, APR = 8%, and term = 5 years.

• Monthly rate: r = 8 ÷ 1,200 = 0.0066667.
• Number of payments: n = 5 × 12 = 60.
• Monthly payment: M = 20,000 × 0.0066667 ÷ [1 − (1.0066667)⁻⁶⁰] ≈ $405.53.
• Total interest: I = $405.53 × 60 − $20,000 = $4,331.80.

These are the calculator outputs for this example. A lender’s payment can differ if its disclosed APR, payment schedule, fees, or final-payment calculation differs from the calculator’s assumptions.

Assumptions

• Each loan has a fixed APR for the entire term.
• Payments are equal, made monthly, and begin one month after borrowing.
• Interest compounds monthly at APR ÷ 12.
• Fees, taxes, insurance, escrow, and any mortgage insurance are not included.

How the Two Borrowing Options Work

A home-equity refinance replaces an existing mortgage with a new mortgage. In a cash-out refinance, the new mortgage is larger than the old payoff amount and the borrower receives the difference, after any applicable costs. The entire refinanced balance is secured by the home. A personal loan is generally a separate installment loan that does not use the home as collateral; the borrower receives a stated amount and repays it over an agreed schedule.

The distinction matters beyond the advertised APR. Refinancing can change the rate and remaining term on the existing mortgage, not merely add a loan for a project. A personal loan usually leaves the original mortgage intact, but creates a second payment. Compare the overall household cash flow and total borrowing cost, not just one new payment.

What to Compare Beyond the Payment

• Whole-debt cost: For a refinance, include interest over the new mortgage’s full term, including the portion used to replace the old balance. For a personal loan, include its interest and any stated fees.
• Term and payoff date: A longer term can lower the monthly payment while increasing total interest. Resetting a mortgage term may mean paying mortgage debt for more years, even if the new APR is lower.
• Upfront and financed costs: Ask for a written breakdown of charges and whether any are paid at closing or added to the principal. Costs added to principal can themselves accrue interest.
• Collateral consequences: Mortgage debt is secured by the home. Failure to meet the mortgage’s terms can put the home at risk. An unsecured personal loan does not generally place a lien on the home, but missed payments can still have financial consequences under the loan contract.
• Rate structure: Confirm whether the quoted rate is fixed or variable and how the lender defines APR. The calculator models a fixed APR and does not model changing rates.

For a refinance, a useful comparison may require calculating the cost of keeping the current mortgage plus any separate borrowing against the cost of replacing it. The calculator above compares one amortizing loan at a time; it does not combine an existing mortgage, closing costs, or a second loan into one household-level analysis.

Common Comparison Mistakes and Limits

A frequent misconception is that a lower monthly payment automatically means lower borrowing cost. It may simply reflect a longer repayment period. Compare total interest over the same relevant timeframe and account for the outstanding balance at that point if one option lasts longer. Also avoid comparing a refinance’s payment on the entire mortgage with a personal-loan payment on only the project amount.

APR and interest rate are not always interchangeable in lender documents: APR may incorporate certain borrowing costs, while the payment calculation uses the rate applicable to the balance. Enter the figure appropriate to the loan’s payment terms, and separately review disclosed fees. Because this calculator rounds the payment to cents, its total-interest estimate can differ slightly from a lender’s figures, especially over long terms. It also does not model variable rates, irregular payments, early payoff, taxes, or any individual eligibility decision. Get the actual rate, fees, repayment schedule, and payoff figures from the lender rather than treating a sample input as a quote.

Frequently Asked Questions

Is a home-equity refinance the same as a home-equity loan?
No. A refinance replaces the existing mortgage with a new mortgage. A home-equity loan is generally a separate loan secured by the home, while a personal loan is generally unsecured. Product terms vary, so check the actual agreement.

Does a lower monthly payment mean I pay less overall?
Not necessarily. A longer term can reduce the payment but increase total interest. Compare the repayment period, total costs, and remaining balances as well as the monthly amount.

Can I compare a refinance and personal loan with this calculator?
Yes, as an estimate of the payment and interest for each single fixed-rate loan. Run it once for each option with that option’s amount, APR, and term. It does not account for an existing mortgage payoff or transaction costs.

Why might the lender’s payment differ from the result?
The lender may use different loan figures, fees, payment timing, rate conventions, or rounding. The calculator excludes fees and assumes monthly payments at a fixed rate. Use the lender’s disclosure for the contractual figures.

Does a personal loan put my home at risk?
A personal loan is generally not secured by the home, unlike a mortgage refinance. That does not remove the obligation to repay: review the loan contract and consequences of missed payments.

This result is an estimate; the lender’s disclosure gives the exact figures.

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in p | Loan amount | $ | 20000 | 1 | 100000000
in apr | Interest rate (APR) | % | 8 | 0.01 | 100
in yrs | Loan term | years | 5 | 0.0833 | 50
out pmt | Monthly payment | $ | p * (apr / 1200) / (1 - (1 + apr / 1200) ^ -(yrs * 12)) | 2
out int | Total interest | $ | pmt * yrs * 12 - p | 2