1. What is Cash Out Refinance?

Cash out refinance is a mortgage refinancing option where the new mortgage is for a larger amount than the existing loan, allowing borrowers to access their home equity in cash.

2. How Does the Calculator Work?

The calculator uses the Bankrate cash out formula:

Where:

• \( Value \) — Current property value ($)
• \( LTV \) — Loan-to-Value ratio (decimal)
• \( Balance \) — Current loan balance ($)

Explanation: The formula calculates how much cash you can access by multiplying the property value by the maximum LTV ratio allowed by lenders, then subtracting your current mortgage balance.

3. Importance of LTV in Refinancing

Details: LTV (Loan-to-Value) ratio is a critical factor in refinancing. Most lenders allow maximum LTV ratios between 80-90% for cash-out refinances. Higher LTV may require private mortgage insurance.

4. Using the Calculator

Tips: Enter accurate property value, desired LTV ratio (typically 0.8 for 80%), and current loan balance. The calculator will show how much cash you could potentially access.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical maximum LTV for cash-out refinance?
A: Most conventional lenders allow up to 80% LTV, though some may go to 90% with additional requirements.

Q2: Are there closing costs with cash-out refinance?
A: Yes, typically 2-5% of the loan amount. These may sometimes be rolled into the new loan.

Q3: How does cash-out refinance differ from HELOC?
A: Cash-out refinance replaces your mortgage with a new, larger one, while HELOC is a second mortgage that works like a credit line.

Q4: When is cash-out refinancing a good idea?
A: When interest rates are favorable, for debt consolidation, home improvements, or major expenses.

Q5: What are the tax implications?
A: Consult a tax professional, but interest may be deductible if used for home improvements (subject to limits).