Cash Out Refinance

Author:  Rob K. Blake        Published: September 5, 2008

Cash Out Refinance Defined

A cash out refinance is when a borrower converts home equity to cash by refinancing with a new mortgage with a higher principal balance than the current mortgage in order to pocket the difference.

For example, your home is worth $300,000 and your current mortgage balance is $200,000. You can increase your new loan amount all the way up to $270,000 which is 90% loan to value (LTV). That means you can “cash out” $70,000.

A cash out refinance does have closing costs. If you pay your costs and get the lowest rate, then your cash back amount will be lowered by the costs. So in the example above, your closing costs are $7,000 and your cash back is now $63,000. If you choose to increase your rate to pay closing costs, then you would get $70,000.

A cash out refinance has an add on. It may depend on your FICO score and your LTV as to what the add on is. That is different for different lenders. You won’t get your cash the day you sign for a cash out refinance. Since it is a home refinance, the 3 day right of rescission applies so you won’t get your cash until the 3 days have past.

Author: Rob K. Blake