Cash Out Refinance Calculator Zillow

Estimate your potential cash out from refinancing your home. Understand the impact on your loan terms and monthly payments.

Cash Out Refinance Details

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 are tapping into your home's equity, which represents the difference between your home's market value and the amount you owe on your mortgage. This process replaces your current mortgage with a new, larger one, and you receive the difference as a lump sum.

Who Should Use a Cash Out Refinance?

A cash out refinance is typically suitable for homeowners who have built up significant equity in their homes and need access to a substantial amount of cash. Key scenarios include:

• Homeowners planning major renovations: Using equity for upgrades can increase your home's value further.
• Individuals looking to consolidate high-interest debt: Replacing credit card debt or personal loans with a mortgage, which often has a lower interest rate, can save money over time.
• Those needing funds for significant life events: Such as paying for education, medical bills, or starting a business.
• Investors seeking leverage: Using home equity to invest in other assets, though this carries higher risk.

Common Misconceptions

One common misconception is that a cash out refinance is always the best way to access home equity. However, other options like home equity loans or lines of credit (HELOCs) might be more suitable depending on the amount needed and the homeowner's financial goals. Another misconception is that the cash out amount is purely profit; it's crucial to remember that this is borrowed money that must be repaid with interest, increasing your overall mortgage debt and potentially your monthly payments.

Cash Out Refinance Formula and Mathematical Explanation

The core calculation for a cash out refinance involves determining the maximum loan amount based on your home's value and the lender's LTV requirements, then subtracting your existing mortgage balance and associated costs to find the net cash you receive.

Step-by-Step Derivation

1. Calculate Maximum Loan Amount: This is determined by multiplying your home's current value by the lender's maximum allowed Loan-to-Value (LTV) ratio.
2. Determine New Loan Amount: The new loan amount will be the maximum loan amount calculated in step 1, provided it's sufficient to cover your current mortgage balance and the desired cash out.
3. Calculate Potential Cash Out: Subtract your current mortgage balance from the new loan amount.
4. Calculate Net Cash Received: Subtract the estimated closing costs from the potential cash out calculated in step 3. This gives you the actual amount of cash you will receive.
5. Calculate New Monthly Payment: Using the new loan amount, interest rate, and loan term, calculate the estimated monthly principal and interest payment using the standard mortgage payment formula.

Variable Explanations

Variables Used in Calculation

Variable	Meaning	Unit	Typical Range
Current Home Value	The estimated market value of your property.	$	$100,000 – $1,000,000+
Current Mortgage Balance	The outstanding principal on your existing mortgage.	$	$10,000 – $800,000+
Desired LTV Ratio	The maximum percentage of the home's value the lender will finance.	%	60% – 90%
New Interest Rate	The annual interest rate on the new refinance loan.	%	3% – 9%+
New Loan Term	The duration of the new mortgage in years.	Years	15, 20, 30
Estimated Closing Costs	Fees paid to lenders and third parties for the refinance.	$	$2,000 – $10,000+
Maximum Loan Amount	The highest loan amount allowed based on LTV.	$	Calculated
New Loan Amount	The total principal of the new mortgage.	$	Calculated
Cash Out Amount	The gross amount of cash received by the borrower.	$	Calculated
Net Cash Received	The actual cash received after deducting closing costs.	$	Calculated
Estimated Monthly Payment	Principal and interest payment for the new loan.	$	Calculated

The formula for the Net Cash Received is: Net Cash = (Current Home Value * Desired LTV Ratio) - Current Mortgage Balance - Estimated Closing Costs. The New Loan Amount is typically the higher of the Current Mortgage Balance or the amount needed to achieve the desired cash out, capped by the Maximum Loan Amount. The Estimated Monthly Payment is calculated using the standard mortgage payment formula: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1], where P is the principal loan amount (New Loan Amount), i is the monthly interest rate (New Interest Rate / 12 / 100), and n is the total number of payments (New Loan Term * 12).

Practical Examples (Real-World Use Cases)

Example 1: Home Improvement Project

Scenario: Sarah owns a home valued at $500,000 with a current mortgage balance of $250,000. She wants to renovate her kitchen and needs $50,000 in cash. She qualifies for an 80% LTV ratio and secures a new 30-year mortgage at 6.8% interest. Estimated closing costs are $6,000.

Inputs:

• Current Home Value: $500,000
• Current Mortgage Balance: $250,000
• Desired LTV Ratio: 80%
• New Interest Rate: 6.8%
• New Loan Term: 30 Years
• Estimated Closing Costs: $6,000

Calculations:

• Maximum Loan Amount = $500,000 * 0.80 = $400,000
• New Loan Amount = $400,000 (to accommodate cash out and existing balance)
• Potential Cash Out = $400,000 – $250,000 = $150,000
• Net Cash Received = $150,000 – $6,000 = $144,000
• Estimated Monthly Payment (P&I) on $400,000 at 6.8% for 30 years ≈ $2,607

Interpretation: Sarah can potentially receive $144,000 in cash. However, her new loan amount increases significantly to $400,000, and her monthly payment rises substantially. She needs to ensure the $50,000 she needs for renovations is worth the increased debt and monthly obligation.

Example 2: Debt Consolidation

Scenario: John has a home worth $350,000 with a mortgage balance of $180,000. He has $30,000 in high-interest credit card debt (average 18% APR). He wants to consolidate this debt using a cash out refinance. He opts for a 15-year term at 7.0% interest with a 75% LTV limit. Closing costs are estimated at $4,500.

Inputs:

• Current Home Value: $350,000
• Current Mortgage Balance: $180,000
• Desired LTV Ratio: 75%
• New Interest Rate: 7.0%
• New Loan Term: 15 Years
• Estimated Closing Costs: $4,500

Calculations:

• Maximum Loan Amount = $350,000 * 0.75 = $262,500
• Desired Loan Amount = Current Mortgage Balance + Debt Consolidation = $180,000 + $30,000 = $210,000
• New Loan Amount = $210,000 (since it's less than the max LTV loan amount)
• Cash Out Amount = $210,000 – $180,000 = $30,000
• Net Cash Received = $30,000 – $4,500 = $25,500
• Estimated Monthly Payment (P&I) on $210,000 at 7.0% for 15 years ≈ $1,895

Interpretation: John can access $25,500 to pay off his credit cards. His new loan is $210,000, and his monthly payment increases from his previous payment (on $180k) to approximately $1,895. While his total debt increases, the lower interest rate on the mortgage compared to credit cards could lead to significant long-term savings on interest paid.

How to Use This Cash Out Refinance Calculator

Our Cash Out Refinance Calculator Zillow is designed for simplicity and accuracy. Follow these steps to get your personalized estimate:

1. Enter Current Home Value: Input the most recent appraised value or a realistic estimate of what your home would sell for today.
2. Input Current Mortgage Balance: Enter the exact amount you currently owe on your mortgage.
3. Set Desired LTV Ratio: Choose the Loan-to-Value ratio you aim for. Lenders typically cap this between 75% and 90%. A lower LTV might secure better rates but reduces borrowing potential.
4. Specify New Interest Rate: Enter the interest rate you expect to receive on the new refinance loan. This is a crucial factor affecting your monthly payment and total interest paid.
5. Select New Loan Term: Choose the desired length of your new mortgage (e.g., 15, 20, or 30 years). Shorter terms mean higher monthly payments but less total interest paid over time.
6. Estimate Closing Costs: Input an estimate for all fees associated with the refinance (appraisal, title insurance, origination fees, etc.). These are typically 2-5% of the loan amount.
7. Click 'Calculate': The calculator will instantly display your estimated cash out amount, the new total loan amount, your projected monthly payment, and the maximum loan amount possible based on your inputs.

How to Read Results

• Cash Out Amount: This is the estimated net cash you'll receive after closing costs.
• New Loan Amount: The total principal balance of your new mortgage.
• Est. Monthly Payment: Your projected monthly payment for principal and interest only. This does not include property taxes, homeowner's insurance, or potential PMI.
• Max Loan Amount (LTV): The highest loan amount your home's value and the chosen LTV ratio allow.

Decision-Making Guidance

Use the results to compare your current mortgage situation with the proposed refinance. Consider:

• Is the increased monthly payment affordable?
• Will the cash out significantly improve your financial situation (e.g., eliminate high-interest debt)?
• Does the total interest paid over the new loan term justify the cash received?
• Compare the new rate and terms with other lenders and options like a home equity loan.

Key Factors That Affect Cash Out Refinance Results

Several elements influence the outcome of your cash out refinance. Understanding these can help you strategize and potentially improve your loan terms:

1. Credit Score: A higher credit score (typically 700+) generally qualifies you for lower interest rates and better LTV ratios, reducing your borrowing costs and potentially increasing the amount of cash you can access. Lenders view higher scores as lower risk.
2. Home Equity: The more equity you have, the more you can borrow. Equity is built through mortgage payments and home appreciation. Lenders require a certain amount of equity (reflected in the LTV ratio) to mitigate their risk.
3. Interest Rates (Market & Personal): Prevailing market interest rates significantly impact the rate you'll receive. Your personal creditworthiness also determines where you fall on the lender's rate spectrum. Higher rates mean higher monthly payments and more total interest paid.
4. Loan-to-Value (LTV) Ratio: Lenders set maximum LTV limits (e.g., 80%). This ratio directly dictates the maximum loan amount you can take out relative to your home's value. Exceeding limits often requires Private Mortgage Insurance (PMI) or is simply not permitted.
5. Closing Costs: These fees (appraisal, title, origination, etc.) reduce the net cash you receive. They can range from 2% to 5% of the loan amount. Negotiating or seeking lenders who offer credits can minimize these costs.
6. Income and Debt-to-Income (DTI) Ratio: Lenders assess your ability to repay the new loan. A stable income and a low DTI ratio (total monthly debt payments divided by gross monthly income) are crucial for approval and favorable terms. A higher DTI may limit your borrowing capacity or lead to rejection.
7. Appraisal Value: The official appraisal determines your home's value for the lender. An unexpectedly low appraisal can reduce the maximum loan amount and the cash you can take out, potentially even preventing the refinance.
8. Economic Conditions and Inflation: Broader economic factors can influence interest rate trends and lender policies. High inflation might lead to higher interest rates, making refinancing less attractive.

Frequently Asked Questions (FAQ)

What is the difference between a cash out refinance and a home equity loan?

A cash out refinance replaces your existing mortgage with a new, larger one, giving you the difference in cash. A home equity loan is a separate loan taken out against your home equity, in addition to your primary mortgage. With a cash out refinance, you have one mortgage payment; with a home equity loan, you have two (your original mortgage plus the new loan).

Can I use a cash out refinance to buy an investment property?

While technically possible, it's generally not recommended. Lenders often have stricter requirements for investment properties, and the risk is higher. It's usually better to explore specific investment property financing options.

How much cash can I realistically get from a cash out refinance?

Most lenders allow you to borrow up to 80% of your home's value, minus your current mortgage balance. Some may go up to 90%, but this often comes with higher rates and stricter requirements. The exact amount depends on your equity, creditworthiness, and the lender's policies.

What happens to my current mortgage during a cash out refinance?

Your current mortgage is paid off and closed out using the funds from the new, larger mortgage. You will no longer have obligations on the old loan; instead, you'll have a new loan with new terms.

Are there tax implications for cash out refinance proceeds?

Generally, the cash you receive from a cash out refinance is not considered taxable income because it's considered loan proceeds. However, if you use the funds for something other than home improvements (like investments or personal expenses), the deductibility of the interest on the loan might change. Consult a tax professional for personalized advice.

What if my home value has decreased since I bought it?

If your home value has decreased, you may have less equity, or even be "underwater" (owing more than the home is worth). This can make it difficult or impossible to qualify for a cash out refinance, as lenders require a certain LTV ratio.

How long does the cash out refinance process take?

The process typically takes between 30 to 60 days from application to closing, similar to a standard mortgage refinance. This timeframe can vary depending on the lender, appraisal process, and title search.

Should I refinance if interest rates have dropped?

If interest rates have dropped significantly since you took out your current mortgage, refinancing (even without taking cash out) could lower your monthly payment and save you money on interest over the life of the loan. A cash out refinance combines this potential benefit with accessing equity.