Is A Cash-In Refinance A Good Idea For You?


To Lower Your LTV So You Can Refinance

Increasing your equity in a cash-in refinance also lowers your loan-to-value ratio (LTV), increasing your flexibility to refinance in the future. You can think of LTV as the inverse of equity. If you have 20% equity in your home your LTV is 80%.

LTV is important because most major loan options outside VA loans require you to have at least 20% equity in your home after the refinance in order to take cash out. Although you’re not looking to take cash out in a cash-in refinance, you might be looking to give yourself the option in the future by making a sizable payment now. Additionally, if you buy a 3 – 4-unit property, you’ll need to have a maximum of no more than 75% – 80% LTV to refinance.

To Shorten Or Lengthen Your Loan Term

Another reason to do a cash-in refinance is to shorten or lengthen your loan term. If you shorten your loan term, you end up with a lower rate compared to loans that have longer terms because investors don’t have to project inflation as far out. You also save thousands on interest by paying off your mortgage sooner.

On the other hand, going with a longer-term mortgage means the opportunity to have a lower monthly payment. The trade-off is a higher interest rate because inflation is being projected further. You also pay more in interest by taking longer to pay the mortgage off. However, if you need the money you’re putting into your house for other things, this is a good option.

To Go From An ARM To A Fixed-Rate Mortgage

Adjustable-rate mortgages (ARMs) have the advantage of a lower interest rate relative to current market rates because the adjustable nature means that investors don’t have to try and guess where inflation is going to be because it can always adjust up or down after the teaser period. People might even get into ARMs because they plan to move before the adjustment happens.

However, if you find yourself staying in your home longer or interest rates are trending up around the time of your adjustment, consider a fixed-rate mortgage. With a fixed-rate, you would have payment certainty for the length of the term. A cash-in refinance can make sense in this scenario.

To Get Rid Of Mortgage Insurance

Conventional and FHA loans have forms of mortgage insurance that you have to pay if you make less than a 20% down payment when you buy your home. In fact, on FHA loans with an initial down payment of less than 10%, the mortgage insurance sticks around for the life of the loan. Although this does help you afford to buy a home without tapping your entire life savings, no one likes paying an extra monthly fee if it can be avoided.

By doing a cash-in refinance, you can increase your equity to a level of at least 20%. By refinancing into a conventional loan, you can avoid future mortgage insurance payments on your home, assuming it’s a primary property.

To Refinance From A Jumbo Loan To A Conforming Mortgage

Maybe you’re looking to refinance, but you currently have a jumbo loan and would like to get into a loan with regular conforming mortgage limits – that is, $548,250 for a 1-unit property, for example. After all, rates may be similar but requirements can be stricter for jumbo loans. You could choose to do a cash-in refinance to get under the conforming mortgage limit.

To Take A Step Toward A Debt-Free Future

For some, a cash-in refinance can be seen as a steppingstone to paying off your mortgage faster. Many homeowners have a formal or informal goal to be debt-free as soon as possible. By putting a large chunk of change into their home and possibly shortening the term, they can pay off the mortgage that much faster.

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