Switching of “Cash”

Just a couple of years ago homeowners were getting “cash-out” refinance loans in unprecedented numbers. In the fourth quarter of last year, homeowners that chose to refinance were putting a new twist on the “cash” portion of the refinanced loan… they were “cashing-in”

According to a recent Freddie Mac quarterly Refinance Report, 36 percent of borrowers that chose to refinance their loan actually lowered their principal balance with the new loan. The net effect of this refinanced loan was to put “cash back in” to the loan transaction, thus, a cash-in loan. This was the highest figure since Freddie Mac started tracking this data eight years ago.

Likewise, during the fourth quarter of last year, only 24 percent of refinance borrowers were taking “cash-out” loans. That was the lowest figure for cash-out loans since 2003.

A cash-out loan is considered any new loan that is 5 percent or more than the previous loan. When borrowers do a cash-out refinance loan, they walk away from the table with a check in hand. The reversal of this is a cash-in loan. The borrower brings to the table a check in hand. This “cash-in” can help the borrower keep their loan balance sheep above water, but also has the beneficial effect of beginning a pattern of rebuilding equity in the home. Equity can prove to be very beneficial to the borrower in the future during a time of need.

Borrowers that choose to do a cash-in refinance loan may help themselves not only by balancing the equation on the loan balance sheet, but may also still end up with interest rates near historic lows, may help themselves avoid mortgage insurance, and may possibly help improve their credit score in the process.

In some areas of the country, home prices are starting to not only recover, but to appreciate. With the stock market still in uncertain territory, putting equity into the home via a cash-in refinance could be seen as a smart investment move. Also, some people need to bring money to the table to refinance as many homes did not appraise high enough.

With these historic rates, it’s a good time to look into a refinance and maybe even adding equity to your home. Make sure you contact a local professional for specific advice for your situation.