Some pay cash to refinance mortgage rates

With mortgage rates near historic lows, some homeowners are bringing checks to the closing table as part of the “cash-in” refinancing trend.

Unlike a cash-out refinancing — where the new mortgage is for more money than the original loan — a cash-in refinancing involves a refinanced mortgage for less than the old loan amount.

Homeowners may opt for a cash-in refinance after getting a low home appraisal or simply wanting to eliminate PMI payments.   If they received a low appraisal it can limit their ability to refinance or can make refinancing more costly than it otherwise would be.  The appraisal may be low due to the simple fact that housing prices have declined.

By bringing cash to the table, borrowers typically either hope to avoid having to get mortgage insurance or to avoid paying higher interest rates for jumbo loans.

Falling values
Usually, private mortgage insurance is required for loans worth more than 80 percent of a home’s assessed value. So if someone purchased a house for $200,000 during the housing boom, and now it’s appraised at only $160,000, the refinanced loan can’t exceed $128,000, or 80 percent of the current value.

If the loan is higher than that amount, the homeowner will have to pay mortgage insurance or use a cash-in refinancing to make up the difference. Even at today’s low interest rates, a refinance may not be worth the trouble if the lender requires mortgage insurance.

A cash-in refi can help homeowners get the lowest interest rates. Or, it may be a way for a homeowner to lower the term of his or her mortgage from 30 to 15 years.

Determining if a “cash in” refinance makes sense is something you should discuss with your Loan Officer.  The big question or concern is whether it is smart to tie up the capital in one property.    There are always cost when refinancing and those cost must be factored in as well as how long the borrower plans on keeping the loan.

Again a good loan officer should be able to provide the answers to many questions.