Market Insight, Random Thoughts

Like It Or Not “Cash-In” Refinancing Is All The Rage

July 29, 2010 by · 1 Comment 

If you own a home and/or know someone who owns a home, you have most likely heard of a cash-out refinance. During the economic and housing boom in the early part of the decade, cash-out refinances were all the rage and fueled consumer spending.

Fast forward to the present and check out these recent news headlines.

So what exactly is a “cash-in” refinance? A “cash-in” refinance is when a borrower brings cash to closing to get the home loan they desire. Yes you heard that correct. A borrower would bring their own money to pay to get the loan they desire.

Frank Nothaft, Freddie Mac’s vice president and chief economist, gives the following statement as to the rationale behind a “cash-in” refinance.

“Interest rates on fixed-rate mortgages are at 50-year lows, making refinancing attractive if borrowers qualify, and similarly rates on savings instruments like CDs are also very low, which makes the choice of paying down mortgage principal very attractive to borrowers with extra cash reserves.”

“If you pay down your mortgage balance you save the interest you would pay on the loan, about 4.6 percent at today’s rates, over the life of the loan versus earning a percentage point or less in CDs and money markets and without the riskiness of stock market investments, which have not performed well in the past couple of years either.”

It seems to make sense unless you read the details of the Freddie Mac 2nd Quarter Cash-Out Refinance Analysis. The report actually states the following as the main causes in the decline of cash-out refinancing:

  1. Reduced Home Prices
  2. Tighter Underwriting Standards for Loan-To-Value Ratios
  3. Negative Appreciation Rates – Declining Home Values

Freddie Mac was quick to declare that “22 percent of homeowners who refinanced their first-lien home mortgage lowered their principal balance by paying-in additional money at the closing table”.

“Cash-In” refinancing is all the rage, not because homeowners want to, but because they have to.

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James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

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One Response to “Like It Or Not “Cash-In” Refinancing Is All The Rage”
  1. One of the conventional arguments for home ownership has always been the interest rate tax deduction. How many times have we told buyers they will “recoup most of that (highly leveraged) payment on your taxes”?

    In the post-recession paradigm, maybe a paid-down note and equity is more important than the tax deduction. Of course if you are lucky enough to have a job, that disposable income can go towards spending, saving, or improving the balance sheet. It’s a mindset issue as much as economic.

    IMHO, people are taking the longer view by acceptance of global warming, sustainability, and green technology. And a more balanced view on consumerism, globalism, less instant gratification than in the xenophobic, security-at-any-cost mentality of the Bush years. This trend is an indicator of that incremental shift in values.

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