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Cash-Out Refinance

Posted on: 01st Apr, 2004 03:14 am
Cash out Refinancing is the process of taking a new mortgage loan greater than the unpaid balance of the existing mortgage, keeping the same property as security for the debt. Through this process a borrower can pay off the existing loan as well as utilize the extra cash for other purposes.

For example, suppose Kris took a mortgage loan of $1, 20,000 to purchase a house. He still owes $70,000. He also wants $25,000 as cash. So he takes a new mortgage loan of $95,000 with the same property as the collateral. This is known as cash out refinancing.

  • One should choose cash out refinance mortgage only when the current market rate is lower than the interest rate on the existing mortgage.

  • The loan amount in cash out refinancing exceeds the amount of existing mortgage that is left to be paid.

  • A borrower has to pay for the closing costs associated with cash out refinance loan.

  • The interest on cash out refinance loan is tax-deductible, so it prevents a borrower from paying extra taxes.
  • Cash out refinancing helps to generate cash from home equity and then use the extra cash for home repairs and paying off other debts.

  • One can also shift from an adjustable rate mortgage to a fixed rate mortgage and vice-versa but this depends on how much a borrower can save due to prevailing market rates.
Related Reading
Related Forum Discussion
Are the LTV/Indicator Score Fee and the Cash Out Refinancing Fee, two fees that have to be charged to the borrower or are these fees just a new way for banks to make money? These fees will add a combined 1.875% of loan amount to the closing cost on people with A Credit.
Posted on: 18th Mar, 2009 05:12 am
andre, i have never heard of "ltv/indicator score fee" nor "cash out refinancing fee."

what kind of lender are you dealing with?
Posted on: 18th Mar, 2009 07:00 am
I really hope he answers you George....this will be interesting.
Posted on: 21st Mar, 2009 05:33 pm
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