Cash-Out Refinance Calculator
Estimate your new mortgage payments and available cash after a cash-out refinance.
Refinance & Cash-Out Details
Your outstanding mortgage balance.
Your current annual interest rate.
Remaining years on your current mortgage.
The proposed interest rate for the new loan.
The term for your new refinanced mortgage.
The amount of cash you want to receive.
Total costs associated with the refinance (appraisal, title, etc.).
Your Refinance Results
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New Loan Amount
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Estimated Monthly P&I (New Loan)
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Estimated Monthly P&I Savings/Increase
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Total Interest Paid (New Loan)
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Total Interest Paid (Remaining on Old Loan)
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Net Cash Received
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Formula Used: The calculator first determines the new loan amount by adding the current loan balance, the desired cash-out, and the refinance closing costs. Then, it calculates the monthly principal and interest (P&I) payment for both the original loan (if it were to continue) and the new loan using the standard mortgage payment formula: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]. Finally, it compares the new payment to the old payment and calculates the net cash received.
Comparison of Total Interest Paid Over Time
| Metric | Current Loan (Remaining) | New Refinanced Loan | Difference |
|---|---|---|---|
| Loan Amount | — | — | — |
| Monthly P&I | — | — | — |
| Total Interest Paid | — | — | — |
| Loan Term (Years) | — | — | — |
What is a Cash-Out Refinance?
A cash-out refinance is a type of mortgage refinancing where you replace your existing home loan with a new one for a larger amount. The difference between your old loan balance and the new loan amount is the "cash-out" you receive. Essentially, you're borrowing against the equity you've built up in your home. This allows homeowners to access a significant sum of money for various purposes, such as home improvements, debt consolidation, education expenses, or investments, while potentially securing a lower interest rate or different loan term than other forms of borrowing.
Who should use it: Homeowners who have significant equity in their property and need access to funds for major expenses or investments. It's particularly beneficial if current interest rates are lower than their existing mortgage rate, or if they want to adjust their loan term. It can also be a strategic move 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 the cheapest way to borrow money. While it can be advantageous, it involves replacing your current mortgage, potentially resetting your loan term and increasing the total interest paid over the life of the loan. Another misconception is that it's only for emergencies; many use it for wealth-building opportunities like home renovations that increase property value or strategic investments.
Cash-Out Refinance Formula and Mathematical Explanation
The core of a cash-out refinance calculation involves understanding how the new loan amount is determined and how the monthly payment is recalculated. We'll break down the key components:
1. Calculating the New Loan Amount:
This is the total amount you will owe on your new mortgage. It includes your existing debt, the cash you wish to withdraw, and any costs associated with the refinance.
New Loan Amount = Current Loan Balance + Desired Cash-Out Amount + Refinance Closing Costs
2. Calculating Monthly Principal & Interest (P&I) Payments:
The standard mortgage payment formula is used to determine the monthly P&I for both the existing loan (to establish a baseline) and the new refinanced loan.
The formula is: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
- M = Monthly Payment
- P = Principal Loan Amount
- i = Monthly Interest Rate (Annual Rate / 12)
- n = Total Number of Payments (Loan Term in Years * 12)
3. Determining Cash Received:
This is the actual amount of cash you receive after all costs are deducted.
Net Cash Received = Desired Cash-Out Amount - Refinance Closing Costs
(Note: Some lenders might roll closing costs into the new loan, affecting the 'New Loan Amount' but not the immediate 'Net Cash Received' out-of-pocket).
Variables Table:
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| Current Loan Balance | Outstanding principal on existing mortgage | Currency (e.g., USD) | $50,000 – $1,000,000+ |
| Current Interest Rate | Annual interest rate of the existing mortgage | % | 1.0% – 8.0%+ |
| Current Loan Term (Remaining) | Years left on the current mortgage | Years | 1 – 30 |
| New Interest Rate | Annual interest rate for the new mortgage | % | 1.0% – 8.0%+ |
| New Loan Term | Total years for the new mortgage | Years | 10 – 30 |
| Desired Cash-Out Amount | The amount of cash requested by the borrower | Currency (e.g., USD) | $5,000 – $200,000+ |
| Refinance Closing Costs | Fees associated with originating the new loan | Currency (e.g., USD) | $2,000 – $10,000+ (or % of loan) |
| Monthly P&I | Principal and Interest payment per month | Currency (e.g., USD) | Varies greatly |
| Net Cash Received | Actual cash in hand after closing costs | Currency (e.g., USD) | Desired Cash-Out – Closing Costs |
Practical Examples (Real-World Use Cases)
Example 1: Home Renovation Funding
Sarah and John have a home worth $500,000 and owe $200,000 on their current mortgage with a 4.5% interest rate over 25 remaining years. They want to do a major kitchen renovation costing $75,000 and need additional funds for landscaping. They decide to get a cash-out refinance.
- Current Loan Balance: $200,000
- Current Interest Rate: 4.5%
- Current Loan Term (Remaining): 25 years
- Desired Cash-Out Amount: $80,000
- Estimated Refinance Closing Costs: $6,000
- New Interest Rate: 3.8%
- New Loan Term: 30 years
Calculation:
- New Loan Amount: $200,000 + $80,000 + $6,000 = $286,000
- Net Cash Received: $80,000 – $6,000 = $74,000
- Using the calculator, the new estimated monthly P&I is approximately $1,340.
- The remaining P&I on their old loan would have been approximately $1,130.
- Monthly Payment Increase: $1,340 – $1,130 = $210
Interpretation: Sarah and John get $74,000 in cash for their renovations. Although their monthly payment increases by $210, they secured a lower interest rate and extended their loan term, which might provide more budget flexibility. They need to consider if the long-term interest cost increase is worth the immediate access to funds.
Example 2: Debt Consolidation and Lowering Payments
Mike has a remaining mortgage balance of $150,000 at 6.0% interest over 18 years. He also has $30,000 in high-interest credit card debt (average 18% APR) and $15,000 in a personal loan (9% APR). His home is valued at $400,000.
- Current Loan Balance: $150,000
- Current Interest Rate: 6.0%
- Current Loan Term (Remaining): 18 years
- Desired Cash-Out Amount: $45,000 (to cover debts)
- Estimated Refinance Closing Costs: $5,000
- New Interest Rate: 4.0%
- New Loan Term: 30 years
Calculation:
- New Loan Amount: $150,000 + $45,000 + $5,000 = $200,000
- Net Cash Received: $45,000 – $5,000 = $40,000
- Using the calculator, the new estimated monthly P&I is approximately $955.
- The remaining P&I on his old loan would have been approximately $1,109.
- Monthly Payment Decrease: $1,109 – $955 = $154
Interpretation: Mike consolidates $45,000 of debt into his mortgage, receiving $40,000 after closing costs. His monthly mortgage payment decreases by $154, and he significantly lowers his overall interest rate compared to his credit cards. However, he extends his repayment term from 18 to 30 years, meaning he will pay more interest over the longer duration, despite the lower rate. This trade-off is often acceptable for the immediate relief and simplification.
How to Use This Cash-Out Refinance Calculator
Our Cash-Out Refinance Calculator is designed to provide a quick and clear estimate of your potential new mortgage terms and the cash you could receive. Follow these simple steps:
- Enter Current Mortgage Details: Input your current outstanding loan balance, your current annual interest rate (as a percentage), and the remaining number of years on your loan term.
- Input New Loan Terms: Enter the new, lower interest rate you anticipate securing with the refinance, and the desired loan term (in years) for your new mortgage. Longer terms typically mean lower monthly payments but more total interest paid.
- Specify Cash Needs: Enter the exact amount of cash you wish to receive from the refinance.
- Estimate Closing Costs: Input the estimated total closing costs associated with the refinance. This includes fees like appraisal, title insurance, origination fees, etc. Your lender can provide a Loan Estimate detailing these costs.
- Calculate: Click the "Calculate" button.
How to Read Results:
- Primary Highlighted Result (New Loan Amount): This shows the total principal you will owe on your new mortgage.
- Estimated Monthly P&I (New Loan): This is your estimated principal and interest payment each month for the new loan.
- Estimated Monthly P&I Savings/Increase: This crucial metric shows the difference between your *estimated new payment* and what your payment *would have been* on the remaining term of your old loan. A negative number indicates savings; a positive number indicates an increase.
- Net Cash Received: This is the actual amount of money you'll pocket after the refinance closing costs are paid (assuming they are paid out-of-pocket).
- Total Interest Paid (New Loan vs. Old Loan): Compare the total interest you'd pay over the life of the new loan versus what you would have paid on the remainder of your old loan.
Decision-Making Guidance:
Use the results to weigh the benefits against the costs. Consider:
- Monthly Payment Impact: Can you comfortably afford the new monthly payment?
- Total Interest Cost: Does extending the loan term significantly increase the total interest paid over time, even with a lower rate?
- Purpose of Cash: Is the reason for taking cash out (e.g., investment, high-return renovation, high-interest debt consolidation) worth the cost of refinancing?
- Closing Costs: Factor in the upfront costs. How long will it take for the potential monthly savings to recoup these costs (the "break-even point")?
The "Copy Results" button allows you to easily save or share your calculation details.
Key Factors That Affect Cash-Out Refinance Results
Several variables significantly influence the outcome of a cash-out refinance. Understanding these factors helps in planning and securing the best possible terms:
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Interest Rates (Market & Your Credit Score):
This is arguably the most critical factor. Lower market interest rates compared to your current mortgage make refinancing attractive. Your personal credit score, debt-to-income ratio, and employment history heavily influence the specific rate you'll be offered. A higher credit score typically unlocks lower rates, reducing both your monthly payment and the total interest paid.
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Home Equity:
Lenders limit how much you can borrow against your home. Typically, they allow a maximum Loan-to-Value (LTV) ratio, often around 80% for a cash-out refinance (meaning the total loan amount cannot exceed 80% of your home's appraised value). Higher equity provides more borrowing power and flexibility.
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Refinance Closing Costs:
These costs (appraisal fees, title insurance, lender fees, recording fees, etc.) can range from 2% to 6% of the loan amount. High closing costs can negate potential savings from a lower interest rate, especially if you plan to move or refinance again in the short term. Some loans allow you to roll these costs into the new loan, increasing the principal but reducing upfront expense.
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Loan Term:
Choosing a longer loan term (e.g., 30 years vs. 15 years) usually results in a lower monthly payment. However, it also means you'll pay significantly more interest over the life of the loan. Conversely, a shorter term means higher monthly payments but less total interest paid.
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Appraised Value of Your Home:
The appraised value determines your home's current market worth and, consequently, your equity. A higher appraised value strengthens your equity position, potentially allowing for a larger cash-out amount or securing better loan terms, especially if the appraisal comes in higher than expected.
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Purpose of the Cash-Out:
While not a direct calculation factor, the intended use of the funds heavily impacts the financial wisdom of the decision. Using cash-out funds for investments with potentially higher returns than the mortgage interest rate, essential home improvements that increase value, or consolidating high-interest debt can justify the costs and extended term. Using it for depreciating assets or disposable expenses may not be financially sound.
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Inflation and Future Economic Conditions:
A lower fixed interest rate obtained during refinancing can be advantageous in an environment where inflation is expected to rise, as the fixed payments become relatively cheaper in real terms over time. Conversely, if interest rates are expected to fall further, refinancing into a long-term loan now might mean missing out on even better rates later.
Frequently Asked Questions (FAQ)
What is the difference between a cash-out refinance and a home equity loan?
A cash-out refinance replaces your entire existing mortgage with a new, larger one. You receive the difference in cash. A home equity loan (or HEL) is a separate, second mortgage taken out against your equity, leaving your first mortgage untouched. A home equity line of credit (HELOC) functions similarly but offers a revolving credit line.
Can I do a cash-out refinance if rates have gone up?
Yes, but it's generally less beneficial. You'd be replacing a lower rate with a higher one, increasing your monthly payment and total interest paid. However, if you desperately need cash and have significant equity, it might still be an option, though less attractive than when rates are falling.
How much cash can I take out with a cash-out refinance?
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% LTV for certain programs, but 80% is a common maximum for cash-out refinances.
Are the closing costs for a cash-out refinance higher than a rate-and-term refinance?
Often, yes. Because a cash-out refinance involves providing you with a lump sum of cash, lenders may view it as slightly higher risk, potentially leading to slightly higher fees or points. However, the core costs (appraisal, title, etc.) are often similar.
What happens to my current mortgage when I do a cash-out refinance?
Your current mortgage is paid off and closed out. It is replaced entirely by the new, larger mortgage. You only have one mortgage payment to make going forward.
Can I use a cash-out refinance to pay off other debts?
Yes, this is one of the most common uses. Consolidating high-interest debt like credit cards or personal loans into a lower-interest mortgage payment can save money on interest and simplify your finances, provided the overall cost of the refinance is justified.
Is the cash I receive from a cash-out refinance taxable?
Generally, no. The cash received from a cash-out refinance is considered loan proceeds, not income, so it is not taxable. However, it's always wise to consult with a tax professional for advice specific to your situation.
What are the risks of a cash-out refinance?
The primary risk is increasing your total mortgage debt and potentially paying more interest over a longer period. If you take out too much equity or your home value declines, you could end up owing more than your home is worth (being "underwater"). Also, failure to make payments on the larger loan could lead to foreclosure.
How does the appraised value affect my cash-out refinance?
The appraised value is crucial because lenders base the maximum loan amount (Loan-to-Value ratio) on it. A higher appraisal means more equity, which allows for a larger cash-out amount or a lower LTV, potentially leading to better interest rates and terms.
Should I use a cash-out refinance to invest in the stock market?
This is a high-risk strategy. While potential returns could exceed mortgage interest costs, you are borrowing against your home. If the investment performs poorly, you still owe the mortgage debt, and you risk losing your home. It's generally recommended to use cash-out funds for necessities, debt consolidation, or home improvements that add value. Consult a financial advisor before leveraging your home for investments.
Related Tools and Internal Resources
- Mortgage Affordability CalculatorEstimate how much home you can afford based on income and expenses.
- Refinance Savings CalculatorDetermine potential savings from refinancing without taking cash out.
- Debt Consolidation CalculatorCompare different debt payoff strategies.
- Home Equity Loan vs. HELOC CalculatorUnderstand the differences and costs of accessing home equity.
- Mortgage Amortization Schedule GeneratorVisualize your loan payoff over time.
- Current Mortgage Rates OverviewGet a general idea of prevailing mortgage rates.