DECEMBER 12TH, 2018

Cash Out Refinances

Versus getting money out of one’s home without taking out a 2nd mortgage or a home-equity loan by refinancing, one could take out a new mortgage for more than the existing mortgage and then pocket the monies. Refinancing one’s home can provide the consumer with needed money for loans as well as tax-free cash. Most consumers simply do not realize the benefits that come from Cash-Out Refinance Plans. When a consumer last refinanced their home mortgage, did the consumer pull out extra money? Did they Cash-Out? If the consumer’s response is no, they are among a significant, recent trend of people throughout the nation: Consumers who are still refinancing their loans to cut monthly payments/shorten payback terms, but not extracting additional cash. According to mortgage analysts, the trend is so pronounced, that refinance cash-outs have recently hit their lowest level in many years. Per Freddie Mac, only 32% of all refinances during the third quarter of this year involved cash-outs of additional monies above the existing loan balance. That data is down from 60%+ cash-out allocations typical during the popularity of the refi-boom in 2202 & 2001; additionally, the all-time record of 93% set in mid-1989.

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General Overview of Cash Out Refinances

Per Freddie Mac’s definition, cashing-out involves refinancing an existing mortgage and replacing with a new loan that is a minimum of at least 5 percent larger. Consumers should be aware that Cash-Outs do require significant home equity to support the extra/additional money being withdrawn. The program frequently comes with a slightly higher interest rate than the absolute lowest available to the consumer. The consumer pays a slight premium when they add more debt to the house than they had previously. All of this has barely dampened the popularity of Cash-Outs. Consumers should perhaps think in these terms that after all, if a consumer refinances their home and lowers the rate while at the same time pulling out an extra substantial amount (tax free), to eliminate other credit bills, pay of children’s tuition, etc., then why not?

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What’s happening now? Why the cash-out fizzle? Again, according to Freddie Mac, many homeowners have already refinanced once or more during the past few years and have already pulled out cash and now their focus is primarily lowering their monthly payments or shortening terms.

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