A cash-out refinance is one way to access the equity you’ve built in your home at cheaper rates than you’ll find on credit cards or unsecured personal loans. Our mortgage cash-out refinance calculator helps you estimate the monthly payments on your new mortgage.
- Start by inputting your home’s current value and the outstanding balance on your existing home loan. You’ll also need to share your credit score range, how much cash you plan to take out, your loan term and your estimated mortgage interest rate. You can use LendingTree to view current refinance rates.
- Click the “Advanced Options” button to get a more accurate figure for your new monthly payment amount by adding information about your current property taxes, homeowners insurance premium and homeowners association fees (if applicable).
- Once you’ve calculated your payment amount, take some time to compare cash-out refinance offers from multiple lenders.
Cash-out refinance costs
You’ll typically spend between 2% and 6% of your loan amount on refinance closing costs with a cash-out refinance. The fees on a cash-out refinance are similar to what you’ll find on a purchase loan and include:
- Application fees
- Appraisal fees
- Flood certification costs
- Origination fees
- Title search fees
- Title insurance premiums
Closing costs can be paid out of pocket or subtracted from your cash-out funds. You may also be offered a no-closing-cost refinance option. However, this choice isn’t free — your lender will simply raise your interest rate or increase your loan amount and pay the costs on your behalf, which means a higher monthly payment and more interest charges over the loan’s lifetime.
⚠ Getting a conventional cash-out refinance may be more expensive in 2023. The Federal Housing Finance Agency (FHFA) announced additional pricing adjustments for nearly all types of conventional cash-out refinances — costs that lenders usually pass down to consumers in the form of higher interest rates. The changes don’t go into effect until May 1, so there’s still time to complete your cash-out refinance before the law of the mortgage land changes.
How can a cash-out refinance lower my monthly mortgage payment?
A cash-out refinance can lower your monthly mortgage payment if current rates have dropped to a point where the lower rate offsets borrowing more than you currently owe. For example, maybe you borrowed $350,000 at a 30-year fixed rate of 7% several years ago, and your current loan balance is only $300,000 with a monthly payment of $2,911.87.
If current 30-year fixed rates have dropped to 6% and you want to borrow an extra $25,000 to make some home improvements, your new monthly payment would only be $2,490.22. Despite tapping an extra $25,000 of equity, the lower rate and loan amount compared to your existing mortgage saves you $421.65 per month.
How much equity does a cash-out refinance require?
The equity requirement depends on what type of cash-out refinance you’re borrowing. Conventional and FHA lenders allow you to borrow up to a maximum 80% loan-to-value (LTV) ratio. VA lenders allow up to a 90% LTV for cash-out refinances. Your LTV ratio is the percentage of your home’s value that is financed by the loan.
For example, if your house is worth $450,000 and you owe $300,000 on your existing mortgage, you have $150,000 in available equity. Keeping the maximum 80% LTV ratio requirement in mind, you may borrow up to an additional $60,000 with a cash-out refinance. To calculate this, multiply your home’s value by 80% ($450,000 x 0.80 = $360,000) and subtract your outstanding loan balance from that amount ($360,000 – $100,000 = $60,000).
Cash-out refinance FAQs
What is a cash-out refinance?
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 refis, read our explainer on how a cash-out refinance works.
When does it make sense to get a cash-out refinance?
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.
How do I calculate the cash-out refinance amount I can get?
These four steps will give you a rough idea of how much home equity you can convert to cash.
- Find out the maximum LTV ratio is for the cash-out loan program you’re applying for
- Multiply the maximum LTV ratio percentage by the estimated value of your home
- Subtract your loan balance from that figure
- The result is how much cash you may receive from a cash-out refinance
What are cash-out refinance rules?
Although the basic guidelines for a cash-out refinance are the same as a rate-and-term refinance, there are some important differences.
- 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.
- 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.
- 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.
Who qualifies for a cash-out refinance?
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, although 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 43% or lower, though some lenders may go as high as 50% in some cases. Your debt-to-income ratio is the percentage of your gross monthly income used to make monthly debt payments.
⚠ A DTI ratio above 40% may cost you more in 2023. New changes to how Fannie Mae prices mortgage rates may result in a higher rate or more closing costs if your DTI ratio exceeds 40%. The new changes take effect May 1, 2023.
- 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.
How can I find the best cash-out refinance lender?
You’ll need to shop around to find the best cash-out refinance lender for you. Be sure to not only check with your existing lender, but gather refinance quotes from at least two other lenders. Ask for referrals from family and friends and check lender reviews.
Pay attention to the rate you’re quoted, plus your estimated closing costs. 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. Make sure you enter your best offers into our cash-out refinance calculator above to compare offers and pick your best deal.