What is a cash-out refinance?
With a cash-out refinance, you basically get a new mortgage with a balance that's higher than your current one. The difference between your old loan and your new one will go straight into your pocket at closing. A cash-out refinance can really come in handy when you need to manage emergency medical expenses, pay for college tuition or even spruce up your home.
How to use the Cash-Out Refinance Calculator
Our handy Cash-Out Refinance Calculator makes crunching the numbers easy. Here’s how it works.
Just enter your current mortgage details (check your latest statement to get accurate numbers), how much cash you're aiming to pull out and your home's current value. Don’t worry, you don’t need an official appraisal to use the calculator—you can enter a ballpark number that you find on real estate websites (real estate comps can help out, too). Finally, choose a loan term. The calculator will estimate your new loan amount based off how much you choose to take out. It will also allow you to play with your min and max cash-out amounts so you can see how it impacts your monthly payment.
You can adjust your home value to see how changes in the market would affect your maximum loan amount.
No matter what, keep in mind that a cash-out refinance does involve taking on a bigger mortgage with different terms and a new rate. So, remember to think long term about your finances before taking this leap.
What are the requirements to qualify for cash-out refinancing?
Here’s a quick gut check to see if you qualify for cash-out refinancing: if you have a credit score of at least 620, a debt-to-income ratio (DTI) of 43% or less and at least 20% equity in your home, you should be able to get a green light. Bonus points if your numbers are looking even better than this, then you’re in a great position to get a lower interest rate, too.
There’s a good reason banks have these requirements: they were put in place to protect both you and the lender from entering a risky financial situation. A strong credit score minimizes the risk of default, a low DTI ensures you aren't stretched too thin financially and sufficient equity means you have a tangible asset (your home, in this case) backing your loan.
When does it make sense to get a cash-out refinance?
In the right circumstances, cash-out refinancing can be a game-changer. If you're swimming in high-interest credit card debt, a cash-out refi could save you in interest charges. Or, if your kitchen is starting to feel like a 90s throwback, a cash-out refi could help bring it back to life, boosting your home's value and your happiness with your home.
On the other hand, a cash-out refinance is a serious commitment. This means it’s not a smart move if you just want to splurge on a lavish vacation or buy a boat named after your border collie. Remember, your home is the collateral here and it’s worth protecting. Always consider the big picture and think long term.
Cash-out refinancing costs
While a cash-out refinance can feel like easy money, it does come with costs. You'll typically need to shell out about 2% to 6% of the new loan amount in closing costs. This covers a variety of expenses, including appraisal fees, attorney fees and origination fees.
Before you get your hopes up, make sure to do the math. Factor in every last fee to see if cash-out refinancing makes good financial sense for you. Refinancing with a cash-out calculator will help you see if it's worth your effort.
How can a cash-out refinance lower my monthly mortgage payment?
Sometimes, cash-out refinancing can actually lower your monthly mortgage payment. This can happen if you snag a lower interest rate than your original loan or if you extend the loan term.
One important call-out here: extending the term may reduce your monthly payments, but you'll end up paying more in interest over the entire life of the loan. Everything in life comes with trade-offs, even mortgages. If you need help making the right move, reach out to a Citi mortgage loan officer who can walk you through what could work for you.
Other ways to tap into your home equity
A cash-out refi isn’t the only way to access your home equity. A home equity line of credit (HELOC) can be a popular option, too. A HELOC works like a credit card that’s secured by your home. It’s a flexible option with variable interest rates.
Still noodling over if refinancing is right for you? Whether you're looking to invest in a home makeover or just streamline your debts, our cash-out refinance payment calculator can help you navigate the possibilities, but if you’re looking for some extra guidance, the Citi team can help!