Calculate equity using all secured debts
Suppose a property is worth $700,000 and the mortgage, secured line of credit and other secured loans total $450,000. Its equity is $250,000: the value less those debts.
The $250,000 describes the value not covered by secured borrowing. Obtaining funds against it requires a separate assessment of you, the property and the proposed financing.
Calculate refinance proceeds after debts and costs
For the same property, assume a new $520,000 loan repays all $450,000 of existing secured debt and pays $3,000 of transaction costs. With no other deductions, $67,000 remains available.
The property had $250,000 of equity before the transaction, but this example leaves $67,000 in funds and a new $520,000 debt. The figures illustrate the arithmetic; they do not estimate qualification or quote transaction fees.
A worked example
How much cash could refinancing leave you?
Start with the equity you own. Then work out what would be left from a new mortgage.
What you own in the property
- Property value
- $700,000
- Less: debt secured against it
- − $450,000
- Your equity
- $250,000
This value is held in your property. Borrowing against it depends on the financing you qualify for.
What you could receive in cash
- Assumed new mortgage
- $520,000
- Less: existing debt paid off
- − $450,000
- Less: refinancing costs
- − $3,000
- Cash left for you
- $67,000
You would receive $67,000 and owe $520,000 on the new mortgage.
In this example, $250,000 in equity results in $67,000 in cash after refinancing.
Illustrative amounts only. The $520,000 mortgage and $3,000 costs are assumptions, not an approval or a fee quote.
Compare a refinance with a home equity line of credit
A refinance changes the mortgage arrangement and may provide additional funds. Compare its payments, repayment period and terms with the existing mortgage, including the cost of replacing it.
A home equity line of credit, or HELOC, is revolving credit secured against a property. Within its terms and limit, you can borrow, repay and borrow again. Interest is charged on the amount used; paying interest alone does not repay the balance.
The choice depends on when you need the funds, how you would repay them and the payments you can carry. Rental-property products and assessment requirements need confirmation rather than assumptions based on homeowner guidance.
Using home equity to replace other debts
Compare more than the new monthly payment. Moving a debt to a lower-rate loan can reduce interest, but extending repayment can increase the total paid over time. Include setup costs and any penalty in the comparison.
Replacing a loan payment that repays principal with an interest-only line-of-credit payment can create monthly breathing room while leaving the borrowed balance outstanding. Plan how that principal will be repaid, and compare balances over the same period. Borrowing against your home also puts it at risk if you cannot repay. A smaller payment is not, by itself, evidence that the change improves your finances.
Include penalties and the payments on the next purchase
A prepayment penalty and other transaction costs can reduce the funds remaining from a refinance. Establish which debts and expenses the loan would pay, the net amount available and when it could be used.
If those funds are for another property, assess the borrowing against the existing property alongside the purchase mortgage. Arranging one loan does not confirm that the complete purchase can proceed.
Ask Streetwise to review the proposed borrowing
Tell us what you want the funds for, the property's current financing and any deadline involved. We review potential funds together with the payments and debt the borrowing would create.
For existing rentals, read about the Portfolio Financing Review. For another purchase, read about investor financing. Homeowners can discuss home financing.
