Cash-Out Refinance

Cash-out refinancing means refinancing a loan where a borrower will be benefited to take out some money on his own home (collateral). It is a situation where a borrower needs some extra money over and above the outstanding balance which has been paying on the previous mortgage. It is a process where a borrower can apply for a loan with the proceedings of sale of earlier loan.
Cash-out refinancing will promote some extra cash to a borrower and a very good option for minimizing the monthly installment over a longer long period of time. Complete terms and conditions regarding monthly installment and rate of interest will be changed as per the market rates available.

The concept is more widely explained through an example. Let us say, If a home is appraised at $100,000 and the borrower outstanding mortgage loan amount is $60000, meaning he has paid $40,000 as installments till the time. As per the loan to value (LTV) ratio, a lender can provide 80% of the appraised value which is in this case is $80,000 (80% of $100,000). The new mortgage loan amount of $80,000 will payoff the $60,000 loan and the rest leave $20,000 is remaining in the hands of borrower. This $20,000 is cash-out to the borrower.

Some of the reasons for cash-out refinance are discussed below:

• To lower monthly installments
• Make cash on the same property and save money
• To replace old mortgage loan with new mortgage loan with more favorable loan terms
• When a borrower needs urgent cash and he has nothing to keep as collateral to take a fresh loan