A cash-out refinance is a mortgage refinancing option where you replace your existing mortgage with a new one for a larger amount. The difference between the new loan amount and your old loan balance is then 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.
How the Calculator Works
This calculator helps you estimate the maximum cash you could potentially receive from a cash-out refinance. It takes into account your home's current value, your outstanding mortgage balance, your lender's maximum allowed Loan-to-Value (LTV) ratio, and the estimated closing costs associated with the refinance.
Key Terms Explained
Current Home Value: The estimated market value of your property.
Current Mortgage Balance: The total amount you currently owe on your existing mortgage.
Desired Loan-to-Value (LTV) Ratio: The maximum percentage of your home's value that a lender is willing to lend. For example, an 80% LTV means the lender will not loan more than 80% of your home's appraised value. This ratio is crucial as lenders set limits on how much equity you can borrow against.
Estimated Refinance Closing Costs: These are the fees and expenses you'll pay to process the new mortgage. They typically include appraisal fees, title insurance, origination fees, recording fees, and sometimes points. These costs are deducted from the total loan amount.
The Calculation Process
The calculator performs the following steps:
Calculate Maximum Loan Amount: It determines the maximum mortgage amount your lender would approve based on your home's value and the desired LTV ratio.
Maximum Loan Amount = Current Home Value × (Desired LTV Ratio / 100)
Calculate Available Equity to Borrow: This is the maximum loan amount minus your current mortgage balance.
Available Equity to Borrow = Maximum Loan Amount - Current Mortgage Balance
Calculate Net Cash Out: Finally, it subtracts the estimated closing costs from the available equity to determine the actual cash you will receive.
Net Cash Out = Available Equity to Borrow - Estimated Refinance Closing Costs
It's important to note that if the calculated Net Cash Out is negative or zero, it means you may not be able to receive any cash from a refinance under these parameters, or the closing costs would consume any potential cash received.
Example Scenario
Let's consider a homeowner with the following details:
Current Home Value: $500,000
Current Mortgage Balance: $300,000
Desired LTV Ratio: 80%
Estimated Refinance Closing Costs: $7,500
Here's how the calculation would break down:
Maximum Loan Amount: $500,000 × (80 / 100) = $400,000
Available Equity to Borrow: $400,000 – $300,000 = $100,000
Net Cash Out: $100,000 – $7,500 = $92,500
In this example, the homeowner could potentially receive approximately $92,500 in cash from their refinance.
Important Considerations
While a cash-out refinance can provide immediate funds, it also increases your mortgage debt and your monthly payments. Ensure you have a clear plan for how you will use the cash and that you can comfortably afford the new, higher mortgage payment. It's advisable to consult with a mortgage professional to discuss your specific situation and explore all available options.
function calculateCashOut() {
var currentHomeValue = parseFloat(document.getElementById("currentHomeValue").value);
var currentMortgageBalance = parseFloat(document.getElementById("currentMortgageBalance").value);
var loanToValueRatio = parseFloat(document.getElementById("loanToValueRatio").value);
var refinanceClosingCosts = parseFloat(document.getElementById("refinanceClosingCosts").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = "; // Clear previous results
// Input validation
if (isNaN(currentHomeValue) || currentHomeValue <= 0) {
resultDiv.innerHTML = "Please enter a valid current home value.";
return;
}
if (isNaN(currentMortgageBalance) || currentMortgageBalance < 0) {
resultDiv.innerHTML = "Please enter a valid current mortgage balance.";
return;
}
if (isNaN(loanToValueRatio) || loanToValueRatio 100) {
resultDiv.innerHTML = "Please enter a LTV ratio between 1 and 100.";
return;
}
if (isNaN(refinanceClosingCosts) || refinanceClosingCosts = currentHomeValue * (loanToValueRatio / 100)) {
resultDiv.innerHTML = "Your current mortgage balance is too high for the desired LTV. No cash out is possible.";
return;
}
var maxLoanAmount = currentHomeValue * (loanToValueRatio / 100);
var availableEquityToBorrow = maxLoanAmount – currentMortgageBalance;
var netCashOut = availableEquityToBorrow – refinanceClosingCosts;
if (netCashOut < 0) {
netCashOut = 0; // You can't receive negative cash
}
var formattedNetCashOut = netCashOut.toLocaleString(undefined, {
style: 'currency',
currency: 'USD'
});
resultDiv.innerHTML = "Estimated Net Cash Out: " + formattedNetCashOut +
"(Based on your inputs and estimated closing costs)";
}