Total Cost After Closing (New Loan + Closing Costs): —
Understanding Cash-Out Refinance
A cash-out refinance is a type of mortgage refinance where you replace your existing mortgage with a new one for a larger amount than you currently owe. The difference between the old loan amount and the new loan amount is paid to you in cash. This cash can be used for various purposes such as home renovations, debt consolidation, investments, or covering large expenses.
How the Calculator Works:
This calculator helps you estimate the key financial implications of a cash-out refinance.
Current Home Value: The estimated current market value of your property.
Current Mortgage Balance: The remaining amount owed on your existing mortgage.
Desired Cash Out Amount: The amount of cash you wish to receive after the refinance.
New Loan Interest Rate: The interest rate on the new mortgage.
New Loan Term (Years): The duration of the new mortgage, typically 15, 20, or 30 years.
Estimated Closing Costs (% of New Loan): A percentage estimate of the fees associated with originating and closing the new mortgage.
Calculations:
The calculator performs the following calculations:
Estimated New Loan Amount: This is calculated by adding your current mortgage balance, the desired cash-out amount, and an estimate for closing costs to the current mortgage balance.
Formula: New Loan Amount = Current Mortgage Balance + Desired Cash Out Amount + (Current Mortgage Balance * Loan-to-Value Ratio Adjustment if applicable) + (Estimated Cash Out Amount * Closing Costs Percentage) *(Note: This calculator simplifies by adding closing costs directly to the total loan amount. A more precise calculation might involve specific lender policies on how closing costs are financed.)*
Estimated Monthly Principal & Interest Payment: This uses the standard mortgage payment formula (M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]), where:
P = Principal loan amount (Estimated New Loan Amount)
i = Monthly interest rate (New Loan Interest Rate / 12 / 100)
n = Total number of payments (New Loan Term in Years * 12)
Estimated Total Closing Costs: Calculated as a percentage of the estimated new loan amount.
Formula: Total Closing Costs = Estimated New Loan Amount * (Closing Costs Percentage / 100)
Total Cost After Closing: The sum of the estimated new loan amount and the estimated total closing costs, representing the total financial commitment immediately after closing.
Formula: Total Cost After Closing = Estimated New Loan Amount + Estimated Total Closing Costs
When to Consider a Cash-Out Refinance:
Home Improvements: Fund renovations to increase your home's value and enjoyment.
Debt Consolidation: Pay off higher-interest debts (like credit cards or personal loans) with potentially lower mortgage interest rates.
Investment Opportunities: Use the funds for investments, although this carries higher risk.
Education Expenses: Finance tuition fees for yourself or your family.
Emergency Fund: Create a financial cushion for unforeseen circumstances.
Important Considerations:
Increased Debt: You will owe more on your mortgage, increasing your total debt.
Higher Monthly Payments: The new loan amount will likely lead to higher monthly payments, even with a lower interest rate.
Closing Costs: Refinancing involves fees and closing costs, which can be substantial.
Loan-to-Value (LTV): Lenders have LTV limits. Your home's equity (value minus current balance) must be sufficient to cover the new loan and cash-out.
Interest Rate Risk: If interest rates rise significantly after you refinance, you might be locked into a higher rate for the long term than if you had kept your original loan.
It's crucial to compare the total cost of the cash-out refinance against the benefit of receiving the cash. Consult with a mortgage professional to discuss your specific situation and explore all options.
function calculateCashOutRefinance() {
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 loanTermYears = parseInt(document.getElementById("loanTermYears").value);
var closingCostsPercentage = parseFloat(document.getElementById("closingCostsPercentage").value);
var newLoanAmount = 0;
var monthlyPI = 0;
var totalClosingCosts = 0;
var totalCost = 0;
// Input validation
if (isNaN(currentHomeValue) || currentHomeValue <= 0 ||
isNaN(currentMortgageBalance) || currentMortgageBalance < 0 ||
isNaN(cashOutAmount) || cashOutAmount <= 0 ||
isNaN(newInterestRate) || newInterestRate <= 0 ||
isNaN(loanTermYears) || loanTermYears <= 0 ||
isNaN(closingCostsPercentage) || closingCostsPercentage = 100) { // Prevent division by zero or negative denominator
alert("Closing costs percentage cannot be 100% or more.");
return;
}
newLoanAmount = (currentMortgageBalance + cashOutAmount) / (1 – (closingCostsPercentage / 100));
// Calculate Total Closing Costs
totalClosingCosts = newLoanAmount * (closingCostsPercentage / 100);
// Calculate Monthly Principal & Interest Payment
var monthlyInterestRate = newInterestRate / 100 / 12;
var numberOfPayments = loanTermYears * 12;
if (monthlyInterestRate > 0) {
monthlyPI = newLoanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
} else {
monthlyPI = newLoanAmount / numberOfPayments; // Simple division if interest rate is 0
}
// Calculate Total Cost After Closing
totalCost = newLoanAmount + totalClosingCosts;
// Display Results
document.getElementById("newLoanAmount").textContent = "$" + newLoanAmount.toFixed(2);
document.getElementById("monthlyPI").textContent = "$" + monthlyPI.toFixed(2);
document.getElementById("totalClosingCosts").textContent = "$" + totalClosingCosts.toFixed(2);
document.getElementById("totalCost").textContent = "$" + totalCost.toFixed(2);
}