4 Things to Consider about Cash-in Refinancing

Posted by  on Aug 11, 2010

Fewer Americans are taking cash out of their homes when refinancing. In fact, a record number of homeowners (33%) lowered their mortgage balance when they refinanced in the fourth quarter of 2009, according to Freddie Mac.

Refinancing and Home Equity

The agency, which began tracking the characteristics of refinance transactions in 1985, said that the second-highest percentage of cash-in refinancing (23%) occurred in the fourth-quarter of 1993. The share of people who did a cash-out refinance and increased their loan balance by at least 5%, was at a record low of 27%.

Should you do a cash-in refinance? Here are four things to consider:

  1. Having cash to put into your home could increase your chances of getting approved for a mortgage refinance. Depending upon how much you lower your principal balance, you might even qualify for the lowest mortgage rates lenders have to offer. Compare mortgage rates here.
  2. Bringing enough cash to closing to boost your home equity above 20% could eliminate mortgage insurance (MI).
  3. Being underwater on a home loan can make it tough to get approved for refinancing. Putting cash into your mortgage could bring your balance down just enough to qualify for a refinance.
  4. Decide whether it makes more sense to put cash into your mortgage to lower the balance than keep your money tied up in a low-paying investment or savings account such as a certificate of deposit.

Invest in Your Future

Doing a cash-in refinance may or may not be the best move at this time. If you live in an area where housing values are still plunging at a brisk pace, it may not make sense to put your spare cash toward the mortgage payoff. But for many people who plan to stay in their homes for the long-term and want to save more money, it's not a bad idea to invest in paying down a mortgage as rapidly as possible.


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