Cash Out Refinance Rates Calculator
Estimate your new monthly payment and understand the costs of a cash-out refinance.
Estimated current market value of your home.
The remaining amount you owe on your current mortgage.
The amount of cash you want to receive.
15 Years
20 Years
30 Years
The duration of your new mortgage loan.
The estimated annual interest rate for the new loan.
Percentage of the new loan amount for closing costs.
Your Cash Out Refinance Estimate
$0.00
$0.00
New Loan Amount
$0.00
Total Closing Costs
$0.00
Estimated Remaining Equity
Monthly Payment = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where P = Principal Loan Amount, i = Monthly Interest Rate, n = Total Number of Payments.
Comparison of New Loan Amount vs. Cash Out Over Time
| Metric | Value |
|---|---|
| Current Home Value | $0.00 |
| Current Mortgage Balance | $0.00 |
| Desired Cash Out | $0.00 |
| New Loan Amount | $0.00 |
| Estimated Closing Costs | $0.00 |
| New Loan Term | 0 Years |
| Estimated Interest Rate | 0.00% |
| Estimated New Monthly Payment | $0.00 |
| Estimated Remaining Equity | $0.00 |
What is a Cash Out Refinance?
A cash out refinance is a mortgage refinancing option that allows homeowners to borrow more than they currently owe on their existing mortgage. The difference between the new loan amount and the old loan balance, minus any fees, is paid out to the homeowner in cash. This cash can be used for various purposes, such as home improvements, debt consolidation, education expenses, or investments. Essentially, you're replacing your current mortgage with a new, larger one and pocketing the difference.
Who should use it? Homeowners with significant equity in their homes who need access to funds for major expenses or investments. It's particularly beneficial if you can secure a lower interest rate than your current mortgage or if you need a substantial amount of cash that other loan types can't provide. It's also a consideration if interest rates have dropped significantly since you took out your original loan, allowing you to lower your overall interest costs while accessing cash.
Common misconceptions: A frequent misunderstanding is that a cash out refinance is always the cheapest way to borrow money. While it can be cost-effective due to potentially lower rates than personal loans or credit cards, it significantly increases your mortgage debt and monthly payments. Another misconception is that it's only for emergencies; many use it strategically for wealth-building opportunities like home renovations that increase property value.
Cash Out Refinance Rates Calculator: Formula and Mathematical Explanation
The core of the cash out refinance calculation involves determining the new loan amount, the associated costs, and then calculating the new monthly mortgage payment based on standard amortization formulas. Our calculator uses the following steps:
- Calculate New Loan Amount: This is the sum of your current mortgage balance, the desired cash out amount, and the estimated closing costs.
- Calculate Total Closing Costs: This is a percentage of the new loan amount.
- Calculate New Monthly Payment: This uses the standard mortgage payment formula (amortization formula).
- Calculate Remaining Equity: This is the current home value minus the new loan amount.
Variable Explanations:
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| Current Home Value (H) | The estimated market value of your property. | $ | $100,000 – $5,000,000+ |
| Current Mortgage Balance (B) | The outstanding principal on your existing mortgage. | $ | $10,000 – $1,000,000+ |
| Desired Cash Out Amount (C) | The amount of cash you wish to receive. | $ | $5,000 – $200,000+ |
| Closing Costs Percentage (CC%) | The percentage of the new loan used for fees and charges. | % | 1% – 5% |
| New Loan Term (Years) (Y) | The duration of the new mortgage. | Years | 15, 20, 30 |
| Estimated Interest Rate (R) | The annual interest rate for the new loan. | % | 3% – 10%+ |
Mathematical Derivation:
1. Total Closing Costs (CC) = New Loan Amount (P) * (Closing Costs Percentage / 100)
2. New Loan Amount (P) = Current Mortgage Balance (B) + Desired Cash Out Amount (C) + Total Closing Costs (CC)
Substituting CC: P = B + C + [P * (CC% / 100)]
Rearranging to solve for P: P * (1 – CC%/100) = B + C
Therefore, P = (B + C) / (1 – CC%/100)
3. Monthly Interest Rate (i) = Annual Interest Rate (R) / 12 / 100
4. Total Number of Payments (n) = New Loan Term (Years) (Y) * 12
5. Monthly Payment (M) = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
6. Estimated Remaining Equity (E) = Current Home Value (H) – New Loan Amount (P)
Practical Examples (Real-World Use Cases)
Let's explore how the cash out refinance rates calculator can be used in practice:
Example 1: Home Renovation Project
Scenario: Sarah and John own a home valued at $500,000 with a remaining mortgage balance of $250,000. They want to undertake a $75,000 kitchen and bathroom renovation. They estimate their closing costs at 3% and find lenders offering a 30-year cash out refinance at 6.5% interest.
Inputs:
- Current Home Value: $500,000
- Current Mortgage Balance: $250,000
- Desired Cash Out Amount: $75,000
- New Loan Term: 30 Years
- Estimated Interest Rate: 6.5%
- Estimated Closing Costs: 3%
Calculator Output (Illustrative):
- New Loan Amount: ~$335,051.55
- Total Closing Costs: ~$10,051.55
- Estimated New Monthly Payment: ~$2,118.14
- Estimated Remaining Equity: ~$164,948.45
Financial Interpretation: Sarah and John can access the $75,000 they need for renovations. Their mortgage balance increases significantly, and their monthly payment rises from what it was previously. However, they are investing in their home, potentially increasing its value, and they've secured a fixed rate for 30 years. They need to ensure their budget can comfortably accommodate the new $2,118.14 monthly payment.
Example 2: Debt Consolidation
Scenario: Michael has a home worth $350,000 with a mortgage balance of $150,000. He has $40,000 in high-interest credit card debt (average 18% APR) and a car loan balance of $15,000. He wants to consolidate this debt using a cash out refinance. He plans for a 15-year term to pay it off faster, with an estimated rate of 7.0% and closing costs of 4%.
Inputs:
- Current Home Value: $350,000
- Current Mortgage Balance: $150,000
- Desired Cash Out Amount: $55,000 ($40k credit cards + $15k car loan)
- New Loan Term: 15 Years
- Estimated Interest Rate: 7.0%
- Estimated Closing Costs: 4%
Calculator Output (Illustrative):
- New Loan Amount: ~$211,458.33
- Total Closing Costs: ~$8,458.33
- Estimated New Monthly Payment: ~$1,787.78
- Estimated Remaining Equity: ~$138,541.67
Financial Interpretation: Michael replaces high-interest debt with a lower-rate mortgage payment. While his total mortgage debt increases, the overall interest paid is likely much lower than continuing with credit cards and the car loan. The 15-year term means a higher monthly payment than a 30-year option, but it ensures the debt is paid off within a defined timeframe. He should compare the new mortgage payment to the sum of his previous credit card and car payments plus interest to confirm savings.
How to Use This Cash Out Refinance Rates Calculator
Our calculator is designed to be intuitive and provide quick estimates. Follow these steps:
- Enter Current Home Value: Input the most recent appraised value or a realistic estimate of your home's market worth.
- Enter Current Mortgage Balance: Input the exact amount you still owe on your existing mortgage.
- Enter Desired Cash Out Amount: Specify how much cash you need. This amount, combined with your current balance and closing costs, determines the new loan size.
- Select New Loan Term: Choose between common terms like 15, 20, or 30 years. Shorter terms mean higher monthly payments but less total interest paid.
- Enter Estimated Interest Rate: Input the annual interest rate you expect to receive. This is a crucial factor affecting your payment. Shop around with different lenders to get the best rate.
- Enter Estimated Closing Costs: Lenders charge fees for refinancing, typically a percentage of the loan amount. Enter your best estimate.
- Click 'Calculate': The calculator will instantly display your estimated new monthly payment, the total new loan amount, the estimated closing costs, and your remaining equity.
How to Read Results:
- New Monthly Payment: This is your estimated principal and interest payment for the new loan. Compare this to your current mortgage payment and your budget.
- New Loan Amount: This is the total amount you will owe after the refinance, including your old balance, cash out, and closing costs.
- Total Closing Costs: This is the upfront fee you'll pay. Factor this into your decision – does the benefit of the cash out outweigh this cost?
- Estimated Remaining Equity: This shows how much of your home's value you still own outright after the refinance. A healthy equity position is generally positive.
Decision-Making Guidance: Use the results to compare different scenarios. Adjust the interest rate, loan term, or cash out amount to see how they impact your monthly payment and total costs. If the new payment is unaffordable or the total interest paid over the life of the loan is too high, a cash out refinance might not be the best option. Consider if the purpose of the cash out justifies the increased debt and potential costs. Always consult with a mortgage professional for personalized advice.
Key Factors That Affect Cash Out Refinance Results
Several elements influence the rates and terms you'll receive for a cash out refinance, impacting your final monthly payment and overall cost:
- Credit Score: A higher credit score (typically 700+) indicates lower risk to lenders, often resulting in lower interest rates and better terms. A lower score may lead to higher rates or denial.
- Loan-to-Value (LTV) Ratio: This compares your total loan amount to your home's value. Lenders prefer lower LTVs. For cash out refinances, they often limit the total LTV (including the cash out) to 80% or less, meaning you need at least 20% equity. Higher LTVs usually mean higher rates.
- Interest Rate Environment: Prevailing market interest rates significantly affect refinance offers. If rates are high, your new rate will likely be higher, increasing your monthly payment and total interest paid. Conversely, falling rates make refinancing more attractive.
- Home Equity: The amount of equity you have is crucial. Lenders require a certain amount of equity to be maintained after the refinance. More equity generally leads to better options and potentially lower rates.
- Loan Term: A shorter loan term (e.g., 15 years) typically has a lower interest rate than a longer term (e.g., 30 years) but results in a higher monthly payment. The choice depends on your budget and how quickly you want to pay off the loan.
- Closing Costs and Fees: These upfront costs can range from 2% to 6% of the loan amount. They include appraisal fees, title insurance, origination fees, etc. Some lenders offer "no-cost" refinances, but these costs are usually rolled into the loan principal or come with a higher interest rate.
- Lender Policies: Each lender has its own underwriting guidelines, risk tolerance, and pricing models. Rates and terms can vary significantly between institutions.
- Economic Conditions & Inflation: Broader economic factors and inflation expectations influence central bank policies and, consequently, mortgage rates. High inflation can lead to higher rates as central banks try to cool the economy.
Frequently Asked Questions (FAQ)
Q1: How much cash can I get from a cash out refinance?
A: Lenders typically allow you to borrow up to 80% of your home's value, minus your current mortgage balance. For example, on a $400,000 home with a $200,000 mortgage, you might be able to borrow up to $320,000 (80% LTV), allowing for a cash out of up to $120,000.
Q2: Is a cash out refinance the same as a home equity loan?
A: No. A home equity loan is a second mortgage, separate from your primary mortgage. A cash out refinance replaces your existing mortgage with a new, larger one.
Q3: What are the risks of a cash out refinance?
A: The primary risk is increasing your total mortgage debt and monthly payments. If you can't afford the new payment or if the reason for the cash out doesn't yield sufficient returns, you could face financial strain. You also risk foreclosure if you default on the larger loan.
Q4: Can I get a cash out refinance if interest rates have gone up?
A: Yes, you can still get a cash out refinance, but the new interest rate will likely be higher than your current rate, making it less financially attractive unless you desperately need the cash.
Q5: How long does the cash out refinance process take?
A: Typically, it takes 30-60 days, similar to a standard mortgage refinance, involving appraisal, underwriting, and closing.
Q6: Is the cash I receive from a cash out refinance taxable?
A: Generally, the cash received from a cash out refinance is not considered taxable income because it's considered loan proceeds. However, consult a tax professional for advice specific to your situation.
Q7: What happens to my current mortgage?
A: Your current mortgage is paid off and closed out at the closing of the new cash out refinance loan. You will only have one mortgage payment going forward.
Q8: Should I use a cash out refinance for debt consolidation?
A: It can be a good strategy if the refinance interest rate is significantly lower than your current debt rates (like credit cards) and you can manage the increased mortgage payment. It consolidates payments into one, potentially saving money on interest.
Related Tools and Internal Resources
- Mortgage Calculator Calculate your standard mortgage payments based on loan amount, rate, and term.
- Home Equity Loan Calculator Estimate payments for a fixed-rate loan secured by your home equity.
- Refinance Calculator Determine if refinancing your current mortgage makes financial sense.
- Debt Consolidation Calculator Compare different debt consolidation strategies and their impact on payments.
- Loan-to-Value (LTV) Calculator Understand your home's equity and LTV ratio.
- Current Mortgage Rates See today's average mortgage rates to inform your refinance decisions.