A cash-out refinance allows you to replace your existing mortgage with a new one for a larger amount. The difference between the new loan amount and your outstanding balance on the old loan is paid out to you in cash. This cash can be used for various purposes, such as home renovations, debt consolidation, education expenses, or investments.
How the Calculator Works
This calculator helps you estimate your new monthly mortgage payment after a cash-out refinance. It takes into account:
Current Home Value: The estimated market value of your property. This is important as lenders typically limit the combined loan-to-value (CLTV) ratio, usually to around 80% for a cash-out refinance.
Current Mortgage Balance: The remaining amount owed on your existing mortgage.
Desired Cash-Out Amount: The lump sum of cash you wish to receive.
New Mortgage Interest Rate: The interest rate on the new loan. Refinancing often involves a different rate than your original mortgage.
New Mortgage Term: The duration of the new loan, typically 15, 20, or 30 years.
The Math Behind the Calculation
The calculator first determines the New Loan Amount. This is calculated as:
New Loan Amount = Current Mortgage Balance + Desired Cash-Out Amount + Estimated Closing Costs
Note: For simplicity, this calculator assumes closing costs are zero or included within the cash-out amount. In reality, closing costs can range from 2% to 5% of the loan amount and should be factored in. This calculator uses: New Loan Amount = Current Mortgage Balance + Desired Cash-Out Amount.
Then, it calculates the estimated Principal and Interest (P&I) portion of your new monthly mortgage payment using the standard mortgage payment formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Your monthly mortgage payment
P = The principal loan amount (the New Loan Amount calculated above)
i = Your *monthly* interest rate (annual interest rate divided by 12)
n = The total number of payments over the loan's lifetime (loan term in years multiplied by 12)
Example Scenario
Let's say you have:
Current Home Value: $500,000
Current Mortgage Balance: $300,000
Desired Cash-Out Amount: $50,000
New Interest Rate: 6.5%
New Mortgage Term: 30 Years
The calculator would first determine the new loan amount: $300,000 (current balance) + $50,000 (cash-out) = $350,000.
Using the formula, with P=$350,000, i=0.065/12 (approx. 0.0054167), and n=30*12=360, the estimated monthly P&I payment would be calculated.
Important Considerations
A cash-out refinance can be a powerful financial tool, but it's crucial to weigh the pros and cons:
Increased Loan Amount: You will owe more than your original mortgage balance, potentially leading to higher total interest paid over the life of the loan.
Longer Repayment Period: If you extend your loan term, you might pay interest for longer, even if your monthly payment decreases.
Closing Costs: Refinancing involves closing costs, which can add to the overall expense. Ensure the benefits outweigh these costs.
Loan-to-Value (LTV) Ratio: Lenders have LTV limits for cash-out refinances. Exceeding these limits might require Private Mortgage Insurance (PMI) or make you ineligible.
Interest Rate Changes: If current rates are higher than your existing mortgage, your monthly payment could increase despite refinancing.
This calculator provides an estimate for the Principal & Interest (P&I) portion of your payment. Your actual total monthly housing payment will also include property taxes, homeowner's insurance, and potentially HOA dues and PMI.
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valueDisplay.textContent = slider.value + " Years";
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function calculateRefinance() {
var currentHomeValue = parseFloat(document.getElementById('currentHomeValue').value);
var currentMortgageBalance = parseFloat(document.getElementById('currentMortgageBalance').value);
var cashOutAmount = parseFloat(document.getElementById('cashOutAmount').value);
var newInterestRate = parseFloat(document.getElementById('newInterestRate').value);
var loanTerm = parseFloat(document.getElementById('loanTerm').value);
var resultValueElement = document.getElementById('result-value');
var newLoanAmountDisplay = document.getElementById('newLoanAmountDisplay');
var loanTermDisplay = document.getElementById('loanTermDisplay');
var interestRateDisplay = document.getElementById('interestRateDisplay');
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resultValueElement.textContent = '$0.00';
newLoanAmountDisplay.textContent = '0.00';
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interestRateDisplay.textContent = '0.00';
// Input validation
if (isNaN(currentHomeValue) || currentHomeValue <= 0 ||
isNaN(currentMortgageBalance) || currentMortgageBalance < 0 ||
isNaN(cashOutAmount) || cashOutAmount < 0 ||
isNaN(newInterestRate) || newInterestRate <= 0 ||
isNaN(loanTerm) || loanTerm maxLoanAmount) {
resultValueElement.textContent = 'Loan amount exceeds 80% LTV. Adjust cash-out or values.';
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return;
}
// Calculate monthly interest rate
var monthlyInterestRate = newInterestRate / 100 / 12;
// Calculate total number of payments
var numberOfPayments = loanTerm * 12;
var monthlyPayment = 0;
if (monthlyInterestRate > 0) {
monthlyPayment = newLoanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
} else {
// Handle case of 0% interest rate (though unlikely for mortgages)
monthlyPayment = newLoanAmount / numberOfPayments;
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interestRateDisplay.textContent = newInterestRate.toFixed(2);
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