How to use the cash out refinance calculator
- Enter your home value, current mortgage balance, rate and time left.
- Enter the cash you want to take out, the new rate and new term, and the closing costs. Choose whether costs are rolled into the loan or taken from the cash.
- Enter the loan-to-value limit your lender uses, so the tool can warn you if the new loan is too large.
- Read the new payment and loan, the loan-to-value, the extra cost of the cash, and the table that compares keeping your mortgage, refinancing and adding a home equity loan.
Formula
New loan = current balance + cash (+ closing costs if rolled in)
Loan-to-value = new loan / home value
Payment = L x i / (1 - (1 + i)^-n)
Cost of the cash = interest on the new loan + closing costs - interest left on the current mortgage
A cash-out refinance replaces your whole mortgage with a bigger one, so the new rate applies to the old balance as well as the cash. That is why the comparison counts all remaining interest on both loans.
Worked example
A $450,000 home with a $240,000 mortgage at 4% and 25 years left has a payment of $1,266.81. Taking $60,000 in cash at 6.75% over 30 years with $7,000 of costs rolled in makes a new loan of $307,000, 68.2% of the home value, and a payment of $1,991.20, up $724.39.
Interest on the new loan is $409,827.41, against $140,042.20 left on the current mortgage, so the cash costs $276,785.21 in extra interest and fees. At an 80% limit, the most cash would be $113,000.
Keeping the 4% mortgage and borrowing $60,000 separately at 8.75% over 15 years with $1,000 of costs gives a total payment of $1,866.48 and interest plus costs of $188,982.75, well below the refinance in this example because the cheap original rate is kept.
The cost of replacing a low rate
The key issue with cash-out refinancing is not the cash itself. It is that your entire balance moves to the new rate. If your current rate is far below today's rates, as in the example, the extra interest on the old balance can dwarf the interest on the cash. The comparison table makes that visible by showing all three options side by side.
If your current rate is higher than the new one, the picture reverses and a cash-out can lower the cost of the old balance as well. For a refinance without cash, use the refinance calculator.
Loan-to-value and lender limits
Lenders limit how much of the home value the new loan can be. The tool shows the loan-to-value of the new loan, the most cash available at the limit you enter, and a warning when you are above it. The limit is an example value. Enter the figure from your own quote, since limits depend on the lender, loan type and property.
Compared with a home equity loan
A home equity loan is a second loan that leaves your first mortgage in place. It usually has a higher rate but applies only to the cash, and its closing costs are often lower. The comparison assumes a fixed-rate home equity loan. Variable-rate lines of credit work differently and are not modeled. See the home equity loan calculator for a closer look, and the closing cost calculator to estimate fees.
Assumptions and limits
- Both loans are fixed-rate with equal monthly payments. The current payment is calculated from your balance, rate and time left.
- Payments are principal and interest only. Property tax, insurance and mortgage insurance are not included.
- If costs are rolled in, the new loan includes them and they accrue interest. If taken from the cash, the cash you receive is lower by that amount.
- The loan-to-value limit is a number you enter. Lender rules are not built in.
- The options pay off over different lengths of time, so compare the payment and total cost together.
- Mortgage insurance, points, taxes, the tax treatment of interest and variable rates are not modeled. This is an estimate, not financial advice or a loan offer.
Frequently asked questions
What is a cash-out refinance?
It replaces your current mortgage with a larger new one, and you receive the difference in cash. The new loan covers your old balance plus the cash, and often closing costs, at the new rate and term.
How much cash can I take out of my home?
It is limited by the loan-to-value your lender allows. Multiply the home value by the limit, then subtract your current balance and any costs rolled in. In the example, at 80% that leaves $113,000.
Is a cash-out refinance better than a home equity loan?
It depends on your current rate. When your existing rate is much lower than today's, keeping it and adding a second loan often costs less in total, as the example shows. When it is higher, refinancing can win.
Why is the total interest so much higher after refinancing?
The new loan is bigger, the term is longer and the whole balance moves to a higher rate. The result is more years of interest on more money. Compare the payment and the time to pay off along with the total.
Should closing costs be rolled into the loan?
Rolling them in avoids paying cash up front but you pay interest on them for the life of the loan. Taking them from the cash lowers what you receive instead. The tool shows the effect of each choice on the new loan.