How is the cash-out amount calculated when refinancing a mortgage?

The cash-out amount in a mortgage refinancing scenario is determined by calculating the difference between the new loan amount and the existing loan balance, along with taking into account any closing costs associated with the refinancing process.

When a homeowner refinances, they often take out a larger loan than what they currently owe. The cash-out amount represents the funds that the homeowner can access beyond the payoff of their existing mortgage. To arrive at this figure, one starts with the new loan amount and subtracts both the old loan balance and any closing costs that may be incurred.

This method ensures that the homeowner understands the net gain they will receive after considering the necessary costs involved in securing the new loan. By including closing costs in the calculation, it accurately reflects the true amount of cash available to the homeowner after refinancing.