VA Cash-Out Refinance Calculator
Understanding VA Cash-Out Refinance
A VA Cash-Out Refinance allows eligible Veterans, active-duty service members, and surviving spouses to refinance their existing VA loan or even a conventional loan into a new VA loan. This process enables them to tap into their home equity by receiving a portion of that equity in cash. Crucially, it allows borrowers to take out more than they owe on their current mortgage, up to certain VA limits, and receive the difference as a lump sum.
How the VA Cash-Out Refinance Works
The core principle is leveraging your home's equity. VA guidelines generally permit cash-out refinances up to 100% of the home's value (Loan-to-Value ratio or LTV), though this can vary based on VA policy and lender requirements. This means if your home is worth $300,000 and you owe $200,000, you could potentially borrow up to $300,000. If you choose to take $50,000 in cash, the remaining $250,000 would be your new loan balance, plus closing costs and the VA funding fee.
Key Benefits of a VA Cash-Out Refinance:
- Access to Funds: Obtain a lump sum of cash for various needs like home improvements, debt consolidation, education expenses, or medical bills.
- Potentially Lower Interest Rate: VA loans often feature competitive interest rates compared to conventional loans.
- No Private Mortgage Insurance (PMI): VA loans do not require PMI, which can significantly lower your monthly payments.
- Forgiving Credit Requirements: VA loans tend to have more lenient credit score requirements than many conventional loans.
- No Down Payment Requirement: For primary residences, VA loans typically require no down payment.
The Calculation Explained
Our calculator estimates your new monthly principal and interest (P&I) payment. Here's a simplified breakdown of the math involved:
1. Calculate the New Loan Amount:
New Loan Amount = Current Home Value * (1 - VA Max LTV/100)
(Note: VA Max LTV is often 100% for cash-out, but this formula is generalized.)
Then, we need to ensure the new loan covers existing balance, cash out, and associated fees:
Total New Principal = Current Mortgage Balance + Desired Cash-Out Amount + VA Funding Fee Amount + Estimated Closing Costs (often rolled in)
The calculator prioritizes the total required principal based on inputs.
2. Calculate the VA Funding Fee Amount:
VA Funding Fee Amount = Total New Principal * (VA Funding Fee Percentage / 100)
This fee is often rolled into the loan principal.
3. Calculate the Monthly Principal & Interest (P&I) Payment:
This uses the standard mortgage payment formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n ā 1]
Where:
M= Your total monthly mortgage paymentP= The principal loan amount (This is theTotal New Principalcalculated above, including the funding fee if rolled in)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)
Example Scenario:
Let's say:
- Current Home Value: $350,000
- Current Mortgage Balance: $220,000
- Desired Cash-Out Amount: $60,000
- New Interest Rate: 4.25%
- New Loan Term: 30 Years
- VA Funding Fee: 2.15%
Calculation Steps:
- Estimate Initial Principal Needed: $220,000 (Balance) + $60,000 (Cash Out) = $280,000
- Calculate VA Funding Fee: $280,000 * (2.15% / 100) = $6,020
- Total New Principal (including funding fee): $280,000 + $6,020 = $286,020
- Calculate Monthly Interest Rate (i): 4.25% / 12 = 0.0425 / 12 ā 0.00354167
- Calculate Total Number of Payments (n): 30 years * 12 months/year = 360
- Calculate Monthly P&I Payment (M): Using the formula with P=$286,020, iā0.00354167, n=360, the estimated monthly P&I payment would be approximately $1,398.65.
Note: This calculation is for Principal & Interest only. It does not include property taxes, homeowner's insurance (and potentially flood insurance), or VA maintenance fees, which would be added to your total monthly housing expense. Closing costs may also be financed into the loan, increasing the principal amount and thus the monthly payment.
Important Considerations:
- Loan Limits: While VA allows up to 100% LTV, lenders may impose their own limits or require appraisals.
- Credit Score: Lenders will assess your creditworthiness.
- Appraisal: An appraisal will determine the current market value of your home.
- Closing Costs: Be prepared for closing costs, which can often be rolled into the loan.
- VA Funding Fee: This is a one-time fee paid to the VA to help keep down costs for taxpayers. Some veterans are exempt.
Consulting with a qualified VA loan specialist or mortgage broker is highly recommended to get precise figures and understand all aspects of your VA Cash-Out Refinance options.