Estimate your cash out amount, new loan details, and potential impact on your monthly payments.
Estimated current market value of your home.
The remaining amount you owe on your current mortgage.
The amount of cash you want to receive.
The estimated interest rate for your new refinance loan.
15 Years
20 Years
30 Years
The duration of your new mortgage loan.
Total closing costs and fees as a percentage of the new loan amount.
Your Refinance Estimates
New Loan Amount$0
Estimated Monthly P&I$0
Total Refinance Fees$0
Remaining Equity$0
Formula Used:
The new loan amount is the sum of the current mortgage balance, the desired cash out amount, and the refinance fees. The monthly Principal & Interest (P&I) payment is calculated using the standard mortgage payment formula: P = L [ i(1 + i)^n ] / [ (1 + i)^n – 1], where L is the new loan amount, i is the monthly interest rate (annual rate / 12), and n is the total number of payments (loan term in years * 12). Remaining equity is the current home value minus the new loan amount.
Cash Out Portion
Remaining Equity
Loan Breakdown
Metric
Value
Current Home Value
$0
Current Mortgage Balance
$0
Desired Cash Out
$0
New Loan Amount
$0
New Interest Rate
0%
New Loan Term
0 Years
Estimated Refinance Fees
$0
Estimated Monthly P&I
$0
Remaining Equity
$0
What is a Freedom Mortgage Cash Out Refinance?
A Freedom Mortgage cash out refinance is a financial strategy where you 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 allows homeowners to tap into their home equity for various purposes, such as home improvements, debt consolidation, education expenses, or investments. Freedom Mortgage, like other lenders, offers these refinance options to help homeowners leverage their property's value.
Who should use it? Homeowners who have built significant equity in their homes and need access to funds for large expenses or financial goals. 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. It can also be a way to consolidate higher-interest debts into a single, potentially lower-interest mortgage payment.
Common misconceptions: A frequent misunderstanding is that a cash out refinance is always beneficial. It increases your mortgage debt and can lead to higher monthly payments if the new loan term is longer or the interest rate is higher. Another misconception is that it's solely about getting cash; it's a complete mortgage replacement, meaning your old loan is paid off and you start fresh with new terms, potentially including closing costs.
Freedom Mortgage Cash Out Refinance Formula and Mathematical Explanation
Understanding the calculations behind a cash out refinance is crucial for making an informed decision. The core of the calculation involves determining the new loan amount, the associated costs, and the resulting monthly payment.
Key Calculations:
Total New Loan Amount: This is the sum of your current mortgage balance, the cash you wish to take out, and any associated closing costs or fees rolled into the loan.
Total Refinance Fees: These are the costs associated with obtaining the new loan, typically expressed as a percentage of the new loan amount.
Monthly Principal & Interest (P&I) Payment: This is calculated using the standard mortgage payment formula, considering the new loan amount, the new interest rate, and the new loan term.
Remaining Equity: This is the portion of your home's value that you still own after the new loan is accounted for.
The Mortgage Payment Formula (P&I):
The monthly payment (M) for a fixed-rate mortgage is calculated as:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Your total monthly mortgage payment (Principal & Interest)
P = The principal loan amount (the total new loan amount)
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)
Variables Table:
Variables Used in Calculation
Variable
Meaning
Unit
Typical Range
Current Home Value
Estimated market value of the property.
$
$100,000 – $1,000,000+
Current Mortgage Balance
Outstanding principal on the existing mortgage.
$
$50,000 – $750,000+
Desired Cash Out Amount
The amount of cash equity the borrower wants to receive.
$
$10,000 – $200,000+
New Interest Rate
Annual interest rate for the new refinance loan.
%
3.0% – 8.0%+
New Loan Term
Duration of the new mortgage loan.
Years
15, 20, 30
Estimated Refinance Fees
Closing costs, points, and other fees as a percentage of the new loan.
%
1.0% – 5.0%
New Loan Amount
Total amount borrowed after refinance (Current Balance + Cash Out + Fees).
$
Calculated
Monthly P&I Payment
Monthly payment for principal and interest.
$
Calculated
Remaining Equity
Home Value – New Loan Amount.
$
Calculated
Practical Examples (Real-World Use Cases)
Example 1: Home Improvement Project
Sarah owns a home valued at $500,000 with a current mortgage balance of $200,000. She wants to do a major kitchen renovation costing $70,000 and needs an additional $10,000 for unexpected expenses. She estimates refinance fees at 2% of the new loan amount and anticipates a new interest rate of 6.5% over 30 years.
Inputs:
Current Home Value: $500,000
Current Mortgage Balance: $200,000
Desired Cash Out Amount: $80,000 ($70,000 renovation + $10,000 buffer)
New Interest Rate: 6.5%
New Loan Term: 30 Years
Estimated Refinance Fees: 2.0%
Calculation Breakdown:
Total Cash Needed (Cash Out + Fees): $80,000 + (0.02 * ($200,000 + $80,000)) = $80,000 + $5,600 = $85,600
New Loan Amount: $200,000 (Balance) + $85,600 (Cash Out + Fees) = $285,600
Interpretation: Sarah can access $80,000 in cash to fund her renovation. Her new loan is $285,600, resulting in an estimated monthly P&I payment of $1,805. She still retains significant equity ($214,400) in her home.
Example 2: Debt Consolidation
John has a home worth $350,000 with a mortgage balance of $150,000. He also has $30,000 in credit card debt with an average interest rate of 18%. He wants to consolidate this debt and get an extra $5,000 for emergencies. He estimates fees at 3% and secures a new rate of 7.0% for a 20-year term.
Inputs:
Current Home Value: $350,000
Current Mortgage Balance: $150,000
Desired Cash Out Amount: $35,000 ($30,000 debt + $5,000 buffer)
New Interest Rate: 7.0%
New Loan Term: 20 Years
Estimated Refinance Fees: 3.0%
Calculation Breakdown:
Total Cash Needed (Cash Out + Fees): $35,000 + (0.03 * ($150,000 + $35,000)) = $35,000 + $5,550 = $40,550
New Loan Amount: $150,000 (Balance) + $40,550 (Cash Out + Fees) = $190,550
Interpretation: John can pay off his high-interest credit card debt and have a $5,000 emergency fund. His new mortgage payment is $1,424, which might be higher or lower than his previous payment plus credit card payments, but the interest rate on the consolidated debt is significantly lower. He maintains substantial equity ($159,450).
How to Use This Freedom Mortgage Cash Out Refinance Calculator
This calculator is designed to provide a quick estimate of the financial implications of a cash out refinance with Freedom Mortgage. Follow these simple steps:
Enter Current Home Value: Input the most recent appraised value or a realistic estimate of your home's current market worth.
Input Current Mortgage Balance: Enter the exact amount you currently owe on your mortgage.
Specify Desired Cash Out Amount: Enter the total amount of cash you need or want to receive from the refinance.
Enter New Interest Rate: Input the estimated annual interest rate you expect to receive for the new refinance loan.
Select New Loan Term: Choose the desired length of your new mortgage from the dropdown options (e.g., 15, 20, or 30 years).
Estimate Refinance Fees: Enter the total closing costs and fees associated with the refinance, expressed as a percentage of the new loan amount. If you're unsure, a common range is 2-5%.
Click 'Calculate': The calculator will instantly update with your estimated results.
How to Read Results:
Highlighted Main Result (Estimated Monthly P&I): This is your primary estimated monthly payment for principal and interest on the new loan. Compare this to your current mortgage payment and other debts.
New Loan Amount: The total amount you will owe after the refinance, including your old balance, cash out, and fees.
Total Refinance Fees: The upfront costs you'll incur for the refinance. Note if these are rolled into the loan or paid out-of-pocket.
Remaining Equity: Shows how much of your home's value you still own. A significant remaining equity is generally a positive sign.
Chart and Table: Visualize the breakdown of your loan and compare key figures.
Decision-Making Guidance:
Use the results to assess affordability. Is the new monthly payment manageable? Does the cash out amount meet your needs? Consider the total cost over the life of the loan. A longer term might lower monthly payments but increase total interest paid. A cash out refinance is a major financial decision; consult with a mortgage professional to ensure it aligns with your long-term financial goals.
Key Factors That Affect Freedom Mortgage Cash Out Refinance Results
Several elements significantly influence the outcome of your cash out refinance application and the resulting loan terms:
Credit Score: A higher credit score generally qualifies you for lower interest rates and better loan terms. Lenders view borrowers with strong credit histories as less risky.
Loan-to-Value (LTV) Ratio: This is the ratio of your mortgage balance to your home's value. Lenders have limits on how much equity you can tap into (e.g., typically up to 80% LTV). A lower LTV often means better rates.
Interest Rates (Market Conditions): Prevailing market interest rates play a huge role. If rates have fallen since you got your original mortgage, refinancing can be advantageous. Conversely, rising rates make cash out refinances less appealing.
Income and Debt-to-Income (DTI) Ratio: Lenders assess your ability to repay the new loan. A stable income and a manageable DTI ratio (your total monthly debt payments divided by your gross monthly income) are crucial for approval and favorable terms.
Refinance Fees and Closing Costs: These costs can add substantially to your total borrowing amount and the overall cost of the refinance. Understanding each fee (appraisal, title, origination, etc.) is important. Rolling them into the loan increases the principal but avoids upfront out-of-pocket expenses.
Home Appraisal Value: The official appraised value of your home determines the maximum loan amount you can secure. An appraisal lower than expected could reduce the amount of cash you can take out or even prevent the refinance.
Loan Purpose: While not always a direct calculation factor, lenders may inquire about the purpose of the cash out. Using funds for home improvements or debt consolidation is often viewed more favorably than using it for speculative investments.
Inflation and Economic Outlook: Broader economic factors like inflation can influence interest rate trends and lender policies. High inflation might lead to higher rates, making refinancing less attractive.
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 $120,000 in cash out (including fees).
Q2: Will my monthly payment increase with a cash out refinance?
A: It depends. If you take out a significantly larger loan amount or secure a higher interest rate, your monthly payment will likely increase. However, if you extend the loan term or secure a lower rate, the payment might stay the same or even decrease, despite the larger loan.
Q3: What are the typical closing costs for a cash out refinance?
A: Closing costs can range from 2% to 5% of the new loan amount. They may include appraisal fees, title insurance, origination fees, recording fees, and attorney fees. Some refinances offer "no-cost" options where fees are rolled into the loan balance.
Q4: Can I do a cash out refinance if I have a second mortgage or HELOC?
A: Yes, but it can be more complex. The lender will consider the combined loan-to-value (CLTV) ratio, which includes all loans secured by your property. LTV limits are often stricter when multiple loans are involved.
Q5: How long does the cash out refinance process take?
A: The process typically takes 30-60 days, similar to a standard mortgage application. This includes the appraisal, underwriting, and closing.
Q6: Is a cash out refinance the same as a home equity loan?
A: No. A home equity loan is a separate loan taken out in addition to your primary mortgage. A cash out refinance replaces your existing mortgage with a new, larger one, and the difference is given to you as cash.
Q7: What happens to my original mortgage?
A: Your original mortgage is paid off in full by the proceeds of the new refinance loan. You will then make payments on the new loan according to its terms.
Q8: Can I use the cash out for anything?
A: Generally, yes. Lenders usually don't restrict how you use the cash, but common uses include home improvements, debt consolidation, education funding, major purchases, or investments. Ensure the use aligns with your financial strategy.