Cash-Out Refinance Calculator

A cash-out refinance involves refinancing your existing mortgage into a new loan that is larger than your current outstanding loan balance. This allows you to take the difference between your old loan and new loan in cash. You can use that cash for any purpose, such as debt consolidation, home renovations or an investment property purchase.

For an in-depth explanation of cash-out refinances, read our article about how a cash-out refinance works.

A cash-out refinance may a smart financial choice if:

  You want to make home improvements. The lump-sum funds from your refinance could pay for kitchen upgrades or a new backyard deck.

  You want to pay off high-interest-rate credit card debt. If you have maxed-out credit cards or high-interest-rate personal loans, you can consolidate them into one cash-out refinance loan. One drawback: The interest on the loan funds used to pay off your debt won’t be tax-deductible.

  You need to cover college tuition expenses. Home equity cash may help pay for tuition, books or other higher education expenses.

  You’re starting a small business or buying an investment property. Your home equity could provide seed money for a startup or help you start building a rental property portfolio.

A cash-out refinance may be a risky or unwise choice if:

  The interest rate on your refinance loan is higher than your current mortgage rate. If your interest rate goes up, you’re volunteering to pay more than you have to in borrowing costs for every dollar of your original mortgage’s remaining balance.

  You’re using the cash payout to consolidate debt. If you’re using the cash from a refinance to pay off short-term debts — like credit card debt — keep in mind that you’re going to pay interest on that money for a far longer time period. Don’t assume that a low interest rate is better than a higher one, because added time means added interest costs.

  You want to use the money to buy luxuries or big-ticket items that depreciate quickly. It’s natural for cars, furniture or other fun potential purchases to catch your eye. But if you can’t afford to buy them with cash, you should consider whether you can afford them at all. It’s not wise to borrow money for items that will only detract from your financial health.

  You don’t feel 100% confident that you can make the payments. If you have any doubt that you’ll be able to keep up with your payments, you shouldn’t take out any loan that uses your house or home equity as collateral. It’s not worth it to lose your home, damage your credit or go through the stresses of foreclosure. Instead, you could look into a personal loan — there are even fast loans that can get you cash as soon as today.

These four steps will give you a rough idea of how much home equity you can convert to cash.

1. Find out the maximum LTV ratio for the cash-out loan program you’re applying for
2. Multiply the maximum LTV ratio percentage by your home’s estimated value
3. Subtract your loan balance from that figure
4. The result is how much cash you may receive from a cash-out refinance

Although the basic guidelines for a cash-out refinance are the same as a rate-and-term refinance, there are some important differences.

1. You must qualify for the higher loan amount. Even if you’re able to get a lower interest rate, your payment will almost always be higher because you’re taking on a higher loan amount.
2. Your home must be in good condition. Because you’re converting home equity into debt, lenders typically require a home appraisal. If there are items that need to be fixed, the lender may require you to use some of the cash from the refinance to repair them.
3. You may need extra title and homeowners insurance. Lenders require you carry enough homeowners insurance and title insurance to protect them. A higher loan amount, or an increase in the cost to replace your home since you bought it, could increase the costs you pay for these types of insurance.

To qualify for a cash-out refinance, you must meet the following general requirements:

• Have at least a 580 credit score for FHA loans or 620 for conventional loans. There’s no minimum credit score for VA loans, though many lenders set their requirement at 620. However, the higher your score for any of these loan types, the better your chances of approval.
• Have a debt-to-income (DTI) ratio of 50% or lower, though some lenders may set their DTI maximum lower. Your DTI ratio is the percentage of your gross monthly income used to make monthly debt payments.
• Have a new home appraisal completed to verify your property’s value and confirm your available equity.
• Have asset, employment and income documentation, such as bank statements, pay stubs and tax returns.

You’ll need to shop around to find the best refinance lender for you. Be sure to not only check with your existing lender, but gather refinance quotes from at least two other lenders. To get a feel for what’s out there, you can explore online lender reviews or ask for referrals from family and friends.

Pay attention to both the interest rates and annual percentage rates (APRs) of any loans you’re offered. Additionally, think about how long you plan to stay in your home. If you’re moving soon after your refinance, it might not make sense to go through the process of replacing your existing mortgage.