Cash Out Refinancing
When someone talks about cash-out refinance loans, they are referring to a home mortgage where the borrower receives cash back at closing after paying off the first mortgage, any liens, and any closing costs. The maximum loan amount of any owner-occupied cash-out refi loan cannot exceed 80% of the property value or loan-to-value (LTV). People take advantage of cash out loans for several reasons like consolidating their debt, home improvements, funding a college education, taking a vacation, or even just to have extra cash on hand.
When a homeowner refinances their existing mortgage and gets cash back at closing, the mortgage will be considered a Cash Out Refi Loan. The old rule on a cash-out refi, “once a cash-out, always a cash-out” is just that, an old rule. It was always treated as a cash out for the rest of the loan term. The title will always reflect the mortgage to be a Cash Out until such time that the mortgage is paid in full. The homeowner can refinance the loan at a future time, but the cash out rule will always apply to the subsequent mortgage loans. This rule has changed effective January 1, 2018. We’ll discuss more the changes for 2018 shortly.
Cash Out Refi Rates
Generally, mortgage rates for Cash Out Refi Loans are slightly higher compared to Rate and Term Refi Loans. For obvious reasons, the equity is being pulled out of the home in the form of cash back to the borrower. Rate and Term Refi, on the other hand, simply refinances the existing mortgage with either:
- lower rate,
- shorter term, or
- lower monthly payment.
There is the closing cost factor in Cash Out Refi loans. Another Cash Out rule was the total closing costs cannot exceed three percent (3%) of the loan amount. This is where the rule will apply to subsequent mortgages after the initial cash-out loan. When a homeowner refinances and existing cash-out refi loan, not only will the rule regarding rate and 80% loan to value (LTV) applies, the 3% Closing Costs rule will also apply. This is true for the remaining term of the loan until such time that the loan is paid off in full in the future. Again, specific changes Cash-Out rule for 2018 applies to this provision.
Cash Out Loan Terms
Fixed Rates are eligible for 15 – 30-year term, and so are 7 & 10 Year Adjustable Rate Mortgages. The Cash-Out Refinance Loan does not allow for 3 or 5-year Adjustable Rate Mortgages.
For additional information, contact our Home Loan Specialist at (866) 772-3802