Cash-Out Home Mortgage Refinance Information

Many people are looking to do a cash-out home refinance in today’s tough economy, so I thought it was an important time to recap the major points of a cash-out refinance.

First, you might wonder what is construed as a cash-out refinance. The first cash-out refinance scenario is obvious, you refinance your first mortgage and take cash out against your home’s equity. The second scenario for a cash-out is where you refinance your first mortgage and second mortgage (if applicable) and consolidate bills such as credit cards and installment loans into your new home loan.

The third scenario classified as a cash-out refinance is where you refinance your first and second mortgage (or HELOC) when your second mortgage was not taken out on the same day as your fist mortgage.

So, why is it important to know whether your loan scenario is classified as a cash-out refinance or a regular rate-term refinance?

It’s all in the Loan-to-Value Ratios (LTV) allowed. Earlier this year, both conventional and FHA loans capped the maximum LTV allowed for cash-out refinance loans. The limits were dropped from a high of 95 percent down to 85 percent.

Now, a ten percent drop may not seem like much, but it can mean the difference between a great loan scenario to a lesser benefit loan scenario to an outright undoable refinance mortgage. Considering the nation-wide drop in home values over the past couple of years, that 10 percent drop in LTV has hit home hard for many that could benefit with a cash-out refinance mortgage.

Also consider that most cash-out refinancing homeowners are rolling their closing costs back into the new loan. So, if you want to refinance your current mortgage balance of $150,000 and consolidate $50,000 in credit card and installment loans into a loan program that has $5,000 in closing and settlement costs, your home will need to appraise for at least $241,176. ($150,000 + $50,000 + $5,000 = $205,000 divided by .85 = $241,176).

Under the old 95 percent LTV limit, your appraisal for this same scenario could come in as low as $215,789 ($205,000 divided by .95 = $215,789).

As you can see, a ten percent drop in LTV may not seem like much, but it has a very significant impact on higher LTV loans.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

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