Refinance
Like It Or Not “Cash-In” Refinancing Is All The Rage
July 29, 2010 by James K Barath, CMPS · 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.
- “Cash-In Refinancing Rise in Second Quarter: Tied for Third Highest Cash-In Share on Record” – Freddie Mac, July 28, 2010
- “US Borrowers Pay Down Mortgages” – Financial Times, July 28, 2010
- “More Borrowers Are Paying Down Their Mortgages: Freddie Mac” – DSNews.com, July 29, 2010
- “Cash-In Refinancing Nears Record High in Q210: Freddie Mac” – HousingWire.com, July 28, 2010
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:
- Reduced Home Prices
- Tighter Underwriting Standards for Loan-To-Value Ratios
- 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.
