Here’s the maximum cash-out amount formula:
Your property value x LTV limit - current mortgage balance = the maximum you can cash out
The LTV limit (known as the loan-to-value ratio limit) for a single-family property is 80%. That means you need to keep a minimum of 20% equity in your home when you do a cash-out refinance. However, the type of property and the number of units the property has can reduce the LTV limit to as low as 70%, which may increase the amount of home equity you need to retain while doing the cash-out.
For example, Ian has a primary residence single-family home with a property value of $400,000 and a current mortgage balance of $100,000. His calculations would look like this: $400,000 x 80% - $100,000 ($320,000) - $100,000 = $220,000 The maximum amount Ian can cash out is $220,000.
Jane has an investment property with 3 units, and the property value is $1,200,000. Her current mortgage balance is $300,000. In this case, the maximum LTV limit is 70%, so Jane needs to keep at least 30% home equity after taking cash out. Her calculations would look like this:
$1,200,000 x 70% - $300,000 ($840,000) - $300,000 = $540,000 The maximum amount Jane can cash out is $540,000.
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- Primary residence, second home, or investment property: What’s the difference?
Disclaimer: This post is for informational purposes only, and is not intended to provide, and should not be relied upon for tax, legal or accounting advice.