1. What is Cash Out Refinance?

A cash-out refinance replaces your current mortgage with a new, larger loan and pays you the difference in cash. This allows homeowners to tap into their home equity without selling their property.

2. How Does the Calculator Work?

The calculator uses the cash-out refinance formula:

Where:

• \( \text{Home Value} \) — Current market value of your home (USD)
• \( \text{LTV} \) — Loan-to-Value ratio (decimal between 0 and 1)
• \( \text{Mortgage Balance} \) — Remaining balance on your current mortgage (USD)

Explanation: The equation calculates how much cash you could potentially access by multiplying your home value by the maximum LTV ratio lenders will allow, then subtracting your current mortgage balance.

3. Importance of Equity Calculation

Details: Understanding your accessible equity helps in financial planning for home improvements, debt consolidation, or other major expenses while considering the risks of increasing your mortgage debt.

4. Using the Calculator

Tips:

• Use a recent home appraisal or comparable sales for accurate home value
• Typical maximum LTV for cash-out refinance is 80% (0.8) for conventional loans
• Include your exact current mortgage balance

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio for cash-out refinance?
A: Most lenders prefer LTV ≤ 80% (0.8) to avoid private mortgage insurance and get better rates.

Q2: How does this differ from a HELOC?
A: Cash-out refinance replaces your entire mortgage, while a HELOC is a second loan with variable rates.

Q3: What costs are involved in cash-out refinance?
A: Expect 2-5% of loan amount in closing costs (appraisal, origination fees, etc.).

Q4: When is cash-out refinance a good idea?

• When interest rates are lower than your current mortgage
• For high-return home improvements
• To consolidate higher-interest debt

Q5: What are the risks?
A: You're increasing your mortgage debt and putting your home at risk if you can't make payments.