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Cash-out refinancing can be a good option for homeowners looking to tap into their home equity. With this calculator, you can see what your monthly payment and overall cost would look like with a cash-out refinance.
How to Use This Cash-out Refinance Calculator
To use this cash-out refinance calculator, you’ll need to gather some basic information, including:
- Your home’s current value
- How much you still owe on your mortgage
- How much you’d like to borrow
- The loan term you’d like (usually 10 to 30 years)
You’ll also have the option to input some additional factors that can impact your overall cost, including:
- Interest rate
- Estimated property taxes
- Home insurance costs
- Homeowners association (HOA) fees
- Private mortgage insurance (PMI) fees
Afterward, you’ll be given an estimate of how much you might qualify for with a cash-out refinance as well as what you can expect to pay per month and overall.
What Is a Cash-out Refinance?
A cash-out refinance is a refinancing option that allows you to pay off your existing mortgage with a larger loan. You’ll receive the difference as a lump sum to use how you’d like (minus any closing costs and fees). Repayment terms typically range up to 30 years.
Depending on your credit, you might qualify for a lower interest rate than what you’re currently paying with a cash-out refinance, which is helpful as you’ll be making payments on a bigger loan.
However, keep in mind that because lenders consider cash-out refinances to be riskier compared to standard rate-and-term refinances, they tend to come with somewhat higher interest rates in comparison. Your rate will also vary depending on whether you opt for a conventional loan or a loan backed by the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA).
Also, remember that just like with any mortgage product, your home will be collateral for the cash-out refinance. This means you risk foreclosure if you don’t keep up with your payments.
How Does a Cash-out Refinance Work?
With a cash-out refinance, you’ll pay off your existing mortgage with a new, larger loan and pocket the difference. Mortgage lenders typically allow you to borrow up to 80% of your home’s value with a conventional cash-out refinance, meaning you must maintain at least 20% equity in your home. These limits differ for government-backed loans: up to 85% for an FHA cash-out refinance and up to 100% for a VA cash-out refinance.
Cash-out Refinance Costs
Like with your first mortgage, you’ll also pay closing costs on a cash-out refinance. These typically range from 2% to 6% of the loan amount. These costs can include fees such as an origination fee, appraisal fee, credit check fee and more.
If you’d like to keep your costs as low as possible, be sure to take the time to shop around and compare your options from as many mortgage lenders as possible. Consider interest rates and fees as well as repayment terms and eligibility requirements.
Cash-out Refinance vs. HELOC vs. Home Equity Loan
Cash-out refinancing isn’t the only way to tap into your home equity. You could also consider a home equity line of credit (HELOC) or a home equity loan. Unlike a cash-out refinance that replaces your first mortgage with a new loan, these products are technically second mortgages that you’ll pay in addition to your existing loan.
Here’s how HELOCs and home equity loans work to help you compare them to a cash-out refinance:
- HELOC: This is a type of revolving credit that lets you repeatedly draw from and pay off a credit line—similar to a credit card. You’ll typically have five to 10 years to access cash with a HELOC while paying only the interest, then an additional 10 to 20 years to repay what you borrowed, plus interest. HELOCs usually come with variable interest rates that can fluctuate with market conditions. Note that these rates are usually higher than what you’d get with a cash-out refinance.
- Home equity loan: Unlike a HELOC, a home equity loan is a fixed-rate loan that provides you with a lump sum to use how you wish. While home equity loan interest rates tend to be higher than what you’d get with a HELOC, they are generally lower than what you’d pay on a personal loan.
Keep in mind that like a cash-out refinance, a HELOC or home equity loan will be secured by your home, which means you risk foreclosure if you can’t make your payments.
Frequently Asked Questions (FAQs)
How can a cash-out refinance lower my monthly mortgage payment?
Depending on your credit, you might be able to get a lower interest rate on a cash-out refinance compared to what you currently have. Or you could reduce your payments by extending your repayment term. For example, refinancing to a 30-year term from an original 15-year loan. Keep in mind that you’ll pay more in interest with a longer term.
Additionally, because you’ll be taking out a larger loan, you might still end up with higher monthly payments than what you’ve been paying.
How much equity does a cash-out refinance require?
You’ll generally need at least 20% equity in your home to qualify for a cash-out refinance—however, this can vary depending on the lender and the type of loan you choose.
This means you can have a maximum 80% loan-to-value (LTV) ratio. To calculate your LTV ratio, divide what you owe on your mortgage by your appraised property value. For example, if you owe $300,000 on your mortgage and your property is valued at $400,000, your LTV ratio would be 75% ($300,000 / $400,000 = 75%).
How much cash can you receive through cash-out refinances?
With a conventional cash-out refinance, you can typically borrow up to 80% of your home’s value—meaning you must maintain at least 20% equity in your home. But if you opt for a VA cash-out refinance, you might be able to access up to 100% of your home’s value.
For example, say your home is worth $400,000, and you currently owe $150,000 on your mortgage. To calculate your home equity, you’d subtract your loan balance from your home’s appraised worth—so, $400,000 – $150,000 = $250,000. If you can borrow 80% of this equity with a cash-out refinance, you’d be able to access $200,000 ($250,000 x 0.80 = $200,000).
How can I find the best cash-out refinance lender?
To find the best cash-out refinance lender for your needs, it’s important to shop around and compare your options from as many of them as possible, including your current mortgage lender. Consider not only interest rates but also repayment terms, any fees charged by the lender and eligibility requirements.
After doing your research, you’ll be able to more easily identify which lender will work best for you.
When does it make sense to get a cash-out refinance?
Whether a cash-out refinance makes sense will depend on your individual situation and financial goals.
Because cash-out refinances tend to come with much lower interest rates compared to other financing options—such as personal loans and credit cards—they can be a good choice if you need to cover large expenses. For example, you might use this type of loan to pay for home improvements, cover education costs or consolidate high-interest debt.
But if you can’t qualify for a lower interest or might struggle to make higher monthly payments, then it might be better to consider other options.
Who qualifies for a cash-out refinance?
While eligibility criteria for a cash-out refinance can vary by lender, there are a few common requirements.
- Decent credit: For a conventional cash-out refinance, you’ll need a credit score of at least 620. If you opt for a government-backed loan, you might qualify with a score as low as 580.
- Low debt-to-income (DTI) ratio: Your DTI ratio is the amount you owe in monthly debt payments compared to your income. For a cash-out refinance, your DTI ratio should be no higher than 50%—though some lenders require lower ratios.
Sufficient equity: You’ll typically need at least 20% equity built in your home.