Understanding Cash-Out Refinance and This Calculator
A cash-out refinance allows you to replace your existing mortgage with a new one for a larger amount. The difference between the new loan amount and your current mortgage balance is paid to you in cash. This cash can be used for various purposes, such as home improvements, debt consolidation, education expenses, or investments.
How the Calculator Works
This calculator helps you estimate your new monthly mortgage payment after a cash-out refinance. It takes into account your current home value, existing mortgage balance, the amount of cash you wish to withdraw, the new interest rate, and the term of the new loan.
The calculation involves several steps:
Determine the New Loan Amount:
The calculator first determines the total amount of your new mortgage. This is typically calculated as:
New Loan Amount = Current Mortgage Balance + Desired Cash-Out Amount + Estimated Closing Costs
*Note: This calculator simplifies by assuming closing costs are absorbed or minimal for the primary calculation of the loan principal. In a real scenario, closing costs would increase the total loan principal.*
Calculate the New Monthly Principal & Interest (P&I) Payment:
Once the new loan amount is established, the calculator uses the standard mortgage payment formula (Amortization Formula) to determine your new monthly P&I payment:
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 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 (Loan Term in Years * 12)
Key Considerations for Cash-Out Refinancing:
Closing Costs: Refinancing involves closing costs, similar to when you first obtained your mortgage. These can include appraisal fees, title insurance, origination fees, and more. Factor these into your decision, as they increase the total amount you borrow.
Loan-to-Value (LTV) Ratio: Lenders have limits on the maximum LTV they will allow. This calculator assumes your desired loan amount is within acceptable LTV limits for a refinance.
Interest Rate Impact: Taking cash out often means taking on a new mortgage, potentially at a different interest rate than your current one. If rates have risen, your new payment could be significantly higher even before considering the cash-out amount.
Purpose of Funds: While cash-out refinances offer liquidity, consider the long-term implications of borrowing against your home equity. Ensure the use of funds justifies the increased debt and interest paid.
Primary vs. Investment Property: Rates and terms may differ for investment properties compared to primary residences.
Use this calculator as an estimate to understand the potential impact on your monthly payments. For precise figures, consult with a mortgage lender.
function calculateCashOutRefinance() {
var currentHomeValue = parseFloat(document.getElementById("currentHomeValue").value);
var currentMortgageBalance = parseFloat(document.getElementById("currentMortgageBalance").value);
var desiredCashOut = parseFloat(document.getElementById("desiredCashOut").value);
var newInterestRate = parseFloat(document.getElementById("newInterestRate").value);
var loanTermYears = parseInt(document.getElementById("loanTermYears").value);
var resultDiv = document.getElementById("result");
// Basic validation
if (isNaN(currentHomeValue) || currentHomeValue <= 0 ||
isNaN(currentMortgageBalance) || currentMortgageBalance < 0 ||
isNaN(desiredCashOut) || desiredCashOut <= 0 ||
isNaN(newInterestRate) || newInterestRate <= 0 ||
isNaN(loanTermYears) || loanTermYears 0) {
var numerator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfMonths);
var denominator = Math.pow(1 + monthlyInterestRate, numberOfMonths) – 1;
newMonthlyPayment = newLoanPrincipal * (numerator / denominator);
} else {
// If interest rate is 0%, payment is just principal divided by months
newMonthlyPayment = newLoanPrincipal / numberOfMonths;
}
// Format the results
var formattedNewLoanPrincipal = newLoanPrincipal.toLocaleString('en-US', { style: 'currency', currency: 'USD' });
var formattedNewMonthlyPayment = newMonthlyPayment.toLocaleString('en-US', { style: 'currency', currency: 'USD' });
resultDiv.innerHTML = "New Estimated Monthly P&I Payment: " + formattedNewMonthlyPayment +
"Total New Loan Amount: " + formattedNewLoanPrincipal + "";
}