Are you looking to lower your monthly mortgage payments? Are you in a position to pay down a large chunk of the principal balance on your home? Do you want to get on an expedited pathway to financial freedom? If so, a cash-in refinance could be a great option for you, especially if you have not yet built 20% equity into your home. Let’s take a look at what a cash-in refinance is and several reasons it may benefit you.
What Is a Cash-In Refinance?
The objective of home refinancing is to replace an already existing loan with a new loan to put you in a better financial position. As the name would suggest, a cash-in refinance allows you to put more cash into a home by making a lump-sum payment on the principal of your total housing cost. It is particularly beneficial to homeowners looking to build more equity in their homes. From lowering your principal to acquiring a lower interest rate, there are several ways through which borrowers may benefit from refinancing on a loan. Overall, a cash-in refinance reduces the balance of your mortgage, and typically the interest rate as well.
Who Should Consider a Cash-In Refinance and Why?
Who should consider a cash-in refinance? A cash-in refinance option is ideal for those looking to pay down an existing mortgage to get under a certain loan-to-value (LTV) ratio. The LTV ratio is calculated by taking your current mortgage and dividing it by the value of your property. Most mortgage lenders require an LTV of 80% to do a refinance, or 20% equity.
What Are the Pros and Cons to a Cash-In Refinance?
There are some pros and cons you will want to consider when determining if a cash-in refinance loan is right for you.
- Access to better refinancing opportunities. When looking to refinance, your lender will look at your loan-to-value ratio. If your LTV ratio is too high, you may be unable to qualify for certain refinancing options. A cash-in refinance will give you the opportunity to to qualify for refinancing. One of the biggest perks of selecting a cash-in refinance is being able to switch from an adjustable rate mortgage (ARM) to a fixed-rate mortgage. Lastly, a cash-in refinance offers the opportunity to get rid of PMI payments once 20% equity has been achieved.
- Lower monthly mortgage payments. By paying down a larger chunk on the principal of your home, you will be able to lower your monthly mortgage payment. This makes it easier to pay your monthly mortgage bill in full and on time, alleviating some of the pressure from such a significant and recurring bill. Additionally, this will also lower the interest rate on your loa
- Mounting costs. A potential downside of a cash-in refinance is that other associated housing costs and fees can add up. For example, closing costs may come to 3–6% of your principal purchasing price. There are a myriad of costs to consider when it comes to refinancing a home loan that you will want to calculate in addition to the cash-in lump sum payment for the refinance.
- Available funding. It is possible you have come across an inheritance or end-of-year work bonus, but otherwise, coming up with an additional chunk of cash to do a cash-in refinance may be challenging. Borrowing from a 401(k) is possible, but there are penalties and fees associated with this option that are difficult, if not impossible, to avoid. If you have any investments, it may be worth considering selling some to pay down on a larger percentage of your house if you are looking to build more equity. However, you should still consider the long-term weight of those investments compared to your housing investment. You could also consider opening a dedicated savings account with the goal of funding a cash-in refinance with more money down.
- Non-cancellable fees. Some fees, like the funding fee for Veterans’ Administration loans or the guarantee fee for U.S. Department of Agriculture loans can’t be eliminated via a cash-in refinance. However, while these are no small fees, in the grand scheme of things, you should not be dissuaded from paying down on your overall debt.
How Can The Home Loan Experts Help? The Home Loan Expert is dedicated to helping homeowners refinance their homes with more affordable loan options. It’s actually how the company got its start. Since then, we have successfully grown our family-style business to incorporate community members, trained to help homeowners find a mortgage loan that suits their lifestyle budgeting needs. We deeply care about customer satisfaction and guarantee a personalized experience. Call us today at (866) 221-1463 to speak with a representative or live chat with one of our lending experts online to find out how to qualify for a cash-in refinancing option!