There's a few things that need to be clarified about a cash out refinance. Overall it won't make any difference tax-wise if your itemized deductions don't exceed your standard deduction. But you need to be aware anyway. There could always be that one tax year with major medical expenses that could put your itemized deductions over your standard deduction.
Let's say at the time of the refi your current outstanding balance is $50K. If you refi only that $50K, then no problem. All of your interest is deductible.
But lets say you refi for $70K on a 15 year loan at 3.0% so you can cash out $20 to use for projects. Since your outstanding balance was $50K, only the interest you paid on the first $50K of the loan is deductible on the SCH A. So $50K is 71.4% of the refi amount that is used to pay off the original loan. Therefore, only 71.4% of the interest is deductible on the SCH A over the life of the new loan.
Now you mentioned you had projects that were going to run around $20K. If you use that $20K cash out amount to "buy, build, or substantially improve your primary residence" that is secured by that loan, then that would allow you to claim all of the interest as a SCH A itemized deduction. But the IRS tracing rules apply. That just means that if questioned, you have to be able to prove where that cash out money went.
A $50K 15 year loan at $3% will result in a payment of $346.55 per month. That amount does not include escrow that may be imposed by the lender for property taxes and insurance.
