Enter your current mortgage details and desired cash-out amount to see potential new loan scenarios.
The remaining amount on your current mortgage.
Your current annual mortgage interest rate.
The original term of your current mortgage in years.
The amount of cash you want to receive.
The estimated interest rate for your new refinance loan.
The term for your new refinance loan in years.
Total fees associated with the refinance.
Your Refinance Results
Estimated New Monthly Payment (P&I)$0.00
New Total Loan Amount$0.00
Total Interest Paid (Over New Term)$0.00
Total Cost of Refinance (Incl. Closing Costs)$0.00
Cash Received$0.00
Monthly Payment (P&I) = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where P = Principal Loan Amount, i = Monthly Interest Rate, n = Total Number of Payments.
Total Interest = (Monthly Payment * Number of Payments) – Principal Loan Amount.
Monthly Payment Comparison: Current vs. Refinanced
Loan Amortization Summary
Period
Starting Balance
Payment
Principal Paid
Interest Paid
Ending Balance
Enter details and click Calculate.
What is a Mortgage Refinance with Cash Out?
A mortgage refinance with cash out is a financial strategy where you replace your existing home loan with a new one for a larger amount. The difference between the new loan amount and your old loan balance, minus any closing costs, is given to you in cash. This allows homeowners to tap into their home's equity for various purposes, such as home improvements, debt consolidation, education expenses, or investments. It's essentially borrowing against the value you've built up in your property.
Who should use it? Homeowners who have significant equity in their homes, have a good credit score, and can secure a new loan with favorable terms (lower interest rate or better loan structure) compared to their current mortgage. It's also suitable for those needing a substantial sum of cash for specific financial goals and who prefer using their home equity as collateral over other forms of borrowing.
Common misconceptions: One common misconception is that refinancing always lowers your monthly payment. While this can happen, especially if you secure a lower interest rate, taking cash out and extending the loan term can sometimes increase your monthly payment. Another misconception is that it's a quick way to get rich; it's crucial to remember that you are taking on more debt, and the cash received needs to be managed wisely to provide a return or solve a problem that justifies the increased financial obligation.
Mortgage Refinance with Cash Out Formula and Mathematical Explanation
The core of a cash-out refinance calculation involves determining the new loan amount and then calculating the new mortgage payment. The process involves several steps:
1. Calculate the New Loan Amount
The new loan amount is the sum of your current outstanding mortgage balance, the desired cash-out amount, and the estimated closing costs. This represents the total principal you will owe on the new loan.
New Loan Amount = Current Loan Balance + Cash Out Amount + Closing Costs
2. Calculate the New Monthly Payment (Principal & Interest)
Once the new loan amount (principal) is established, we use the standard mortgage payment formula (annuity formula) to calculate the monthly payment for Principal and Interest (P&I).
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Your total monthly mortgage payment (P&I)
P = The principal loan amount (the New Loan Amount calculated above)
i = Your monthly interest rate (Annual Interest Rate / 12)
n = The total number of payments over the loan's lifetime (New Loan Term in Years * 12)
3. Calculate Total Interest Paid
This is the total amount of interest you will pay over the entire life of the new loan.
Total Interest Paid = (Monthly Payment * Number of Payments) - New Loan Amount
4. Calculate Total Cost of Refinance
This includes all the money you'll pay towards the loan over its lifetime, plus the initial closing costs.
Total Cost of Refinance = (Monthly Payment * Number of Payments) + Closing Costs
Variables Table
Mortgage Refinance Variables
Variable
Meaning
Unit
Typical Range
Current Loan Balance
Remaining principal on your existing mortgage.
USD ($)
$50,000 – $1,000,000+
Current Interest Rate
Annual interest rate of your current mortgage.
Percent (%)
2.0% – 8.0%+
Current Loan Term
Original term of your mortgage in years.
Years
15 – 30
Cash Out Amount
Additional funds you wish to receive.
USD ($)
$10,000 – $200,000+
New Interest Rate
Estimated annual interest rate for the new refinance loan.
Percent (%)
2.0% – 8.0%+
New Loan Term
Term length for the new refinance loan in years.
Years
15 – 30
Closing Costs
Fees associated with originating the new loan.
USD ($)
$2,000 – $10,000+ (often 1-5% of loan amount)
New Loan Amount
Total principal for the new mortgage.
USD ($)
Sum of Balance, Cash Out, and Costs
Monthly Payment (P&I)
Principal and Interest portion of the monthly payment.
USD ($)
Calculated
Total Interest Paid
Total interest paid over the life of the new loan.
USD ($)
Calculated
Practical Examples (Real-World Use Cases)
Let's explore how a mortgage refinance with cash out works in practice.
Example 1: Home Renovation Funding
Scenario: Sarah and John have a remaining balance of $200,000 on their mortgage with a 5.0% interest rate over 20 years remaining. They want to do a major kitchen renovation costing $60,000 and estimate closing costs at $4,000. They find a lender offering a new 30-year refinance loan at 4.5%.
Estimated New Monthly Payment (P&I): ~$1,338.50 (using the formula)
Cash Received: $60,000
Total Interest Paid (30 years): ~$217,860
Total Cost of Refinance: ~$481,860 ($264,000 principal + $217,860 interest + $4,000 closing costs)
Interpretation: Sarah and John can fund their $60,000 renovation. Their new monthly payment is slightly lower than their previous payment ($1,338.50 vs. ~$1,515 for the original loan), primarily due to the lower interest rate and longer term. However, they will pay significantly more interest over the life of the loan because the term is extended by 10 years.
Example 2: Debt Consolidation
Scenario: Michael has $150,000 left on his mortgage at 6.0% interest with 25 years remaining. He also has $30,000 in high-interest credit card debt (average 18% APR). He wants to consolidate this debt into his mortgage. He estimates closing costs at $3,500. He finds a refinance option at 5.5% for a new 30-year term.
Estimated New Monthly Payment (P&I): ~$1,041.70 (using the formula)
Cash Received: $30,000
Total Interest Paid (30 years): ~$191,512
Total Cost of Refinance: ~$375,012 ($183,500 principal + $191,512 interest + $3,500 closing costs)
Interpretation: Michael can pay off his $30,000 in high-interest debt. His new monthly mortgage payment is slightly higher than his previous one ($1,041.70 vs. ~$1,073.64 for the original loan), but he is now paying a much lower rate on the consolidated debt. The trade-off is a longer loan term and significantly more total interest paid over 30 years compared to the remaining 25 years on his original loan. This strategy is effective if Michael commits to paying extra towards the principal to pay off the loan faster than 30 years.
How to Use This Mortgage Refinance Calculator with Cash Out
Our mortgage refinance calculator with cash out is designed for simplicity and clarity. Follow these steps to understand your potential refinance options:
Enter Current Mortgage Details: Input your current loan balance, interest rate, and the remaining term of your existing mortgage.
Specify Cash-Out Needs: Enter the amount of cash you wish to receive from the refinance.
Estimate New Loan Terms: Input the estimated interest rate and loan term you expect to receive for the new refinance loan. Lenders typically offer different rates and terms based on market conditions and your creditworthiness.
Add Closing Costs: Provide an estimate for the total closing costs associated with the refinance. These can include appraisal fees, title insurance, origination fees, etc.
Click 'Calculate': Once all fields are populated, click the 'Calculate' button.
How to Read the Results:
Estimated New Monthly Payment (P&I): This is the core P&I payment for your new loan. Compare this to your current P&I payment. A lower payment might be desirable, but consider the loan term.
New Total Loan Amount: This shows the total principal you will owe after refinancing, including your old balance, the cash out, and closing costs.
Cash Received: This is the net amount of cash you will receive after the refinance closes.
Total Interest Paid: This estimates the total interest you'll pay over the entire life of the new loan. A longer term or higher loan amount will increase this.
Total Cost of Refinance: This is the sum of all payments made on the new loan plus the closing costs.
Decision-Making Guidance:
Use the results to weigh the benefits against the costs. Consider:
Monthly Cash Flow: Does the new payment fit your budget?
Total Cost: Are you comfortable with the total interest paid over the new loan term? Refinancing into a longer term often means paying more interest overall, even with a lower rate.
Purpose of Cash Out: Does the intended use of the cash (e.g., investment, home improvement) justify the cost of borrowing?
Break-Even Point: Calculate how long it will take for the savings from a lower monthly payment (if applicable) to offset the closing costs.
The amortization table and chart provide a visual breakdown of how your new loan will be paid down over time and how the payments compare to your current situation.
Key Factors That Affect Mortgage Refinance Results
Several factors significantly influence the outcome of a mortgage refinance with cash out. Understanding these can help you strategize and potentially secure better terms:
Interest Rates: This is paramount. A lower interest rate on the new loan directly reduces your monthly payment and the total interest paid over the loan's life. Conversely, a higher rate increases costs. Market conditions and your credit score heavily influence the rate you'll be offered.
Loan-to-Value (LTV) Ratio: Lenders assess risk based on LTV, which is the loan amount divided by the home's appraised value. For cash-out refinances, lenders often require a lower LTV (e.g., 80% or less) to ensure sufficient equity cushion. A higher LTV might mean higher rates or denial.
Credit Score: A strong credit score (typically 700+) is crucial for qualifying for the best refinance rates and terms. A lower score may result in higher interest rates or limit your options, especially for cash-out loans.
Closing Costs: These fees (appraisal, title, origination, etc.) add to the total cost of refinancing. They can range from 1% to 5% of the loan amount. High closing costs can negate savings from a lower rate, especially if you plan to move or refinance again soon.
Loan Term: Extending your loan term (e.g., from 15 to 30 years) typically lowers your monthly payment but significantly increases the total interest paid over the life of the loan. Shortening the term usually increases the monthly payment but reduces total interest.
Home Equity: The amount of equity you have (home value minus loan balance) determines how much cash you can take out. Lenders limit cash-out amounts, often to 80% of the home's value. Sufficient equity is essential for a successful cash-out refinance.
Economic Conditions & Inflation: Broader economic factors influence interest rate trends. High inflation might lead the central bank to raise rates, making refinancing less attractive. Conversely, during economic downturns, rates might fall, creating refinancing opportunities.
Appraisal Value: The appraised value of your home is critical for determining your LTV and the maximum loan amount. An unexpectedly low appraisal can limit the cash you can take out or even prevent the refinance.
Frequently Asked Questions (FAQ)
Q1: How much cash can I take out when refinancing?
A: Lenders typically allow you to borrow up to 80% of your home's appraised value, minus your current mortgage balance. Some may go up to 90%, but this is less common for cash-out refinances and may come with higher rates.
Q2: Will my monthly payment increase with a cash-out refinance?
A: It depends. If you secure a significantly lower interest rate and/or keep the loan term the same or shorten it, your payment might decrease or stay similar. However, if you take out a large amount of cash or extend the loan term considerably, your monthly payment will likely increase.
Q3: Is a cash-out refinance a good idea for debt consolidation?
A: It can be, as it often allows you to convert high-interest unsecured debt (like credit cards) into a lower-interest secured loan. However, be aware that you are extending your mortgage term and increasing the total interest paid. Ensure you have a solid plan to manage the debt and avoid accumulating new high-interest debt.
Q4: What are the closing costs for a cash-out refinance?
A: Closing costs can include appraisal fees, title insurance, loan origination fees, recording fees, notary fees, and attorney fees. They typically range from 1% to 5% of the loan amount. Some lenders offer "no-cost" refinances, but these usually involve a higher interest rate.
Q5: How long does the cash-out refinance process take?
A: The process can take anywhere from 30 to 60 days, similar to purchasing a home. It involves application, appraisal, underwriting, and closing.
Q6: Can I deduct the interest on a cash-out refinance?
A: Interest paid on a mortgage used to buy, build, or substantially improve your home is generally deductible up to certain limits. Interest on cash taken out for other purposes (like debt consolidation or vacations) may not be deductible, or deductibility might be limited. Consult a tax professional for personalized advice.
Q7: What happens to my existing mortgage?
A: Your existing mortgage is paid off with the proceeds from the new, larger refinance loan. You will only have one mortgage payment going forward.
Q8: Should I refinance if interest rates have gone up?
A: Generally, if interest rates have risen significantly since you took out your current mortgage, refinancing might not be beneficial unless you need the cash out and the new rate is still better than the rate on other forms of borrowing, or if you are extending the term to lower your monthly payment significantly for cash flow reasons.