Cash-Out vs. Cash-In Home Refinancing

There’s been a lot of talk about home refinancing these days. And with interest rates so low, it makes perfect sense. But, before you get all excited and start thinking that now is the time for you to refinance your home too, you need to know a couple things. The first is that if you’re considering home refinancing, you need to know what the amount of your mortgage is, and how much you owe. These two amounts will determine if you will be eligible for cash-out home refinancing, or if you’ll need a cash-in home refinancing. And of course, you should also know the difference between the two.
Cash-out home refinancing is the most popular type there is; and it’s no wonder seeing as how it’s this type that will actually give you cash in your pocket when you walk out of your lender’s office. Homeowners are eligible for cash-out refinancing if the amount they’ve already paid on their mortgage is more than the amount they still owe. With cash-out, you still get a new mortgage, new terms, and a new interest rate. But because you have already paid most of your mortgage, you can also take out a mortgage bigger than what’s needed to pay off your home. In other words, you can borrow more money than you actually need to pay the original loan. This extra money goes into your pocket and can be used for anything – home renos, paying off credit cards, whatever you want. And still, your mortgage payments will be lower with the new loan and your interest rates generally will be as well.
Cash-in home refinancing on the other hand, is the type of refinancing loan you will need to apply for if the new amount you’re borrowing is less than the original mortgage. And with this type of refinancing, instead of getting a cheque, you’ll have to give one. That’s right, when you walk into your mortgage broker’s or lender’s office, you’ll also need to bring a pretty substantial cheque in order to pay off more of your mortgage. And you won’t get any money back either. So why would anyone choose to go into a cash-in home refinancing?
Usually, it’s so that the homeowner can still get a better deal on their existing mortgage when interest rates drop. And, it’s also so that they can avoid very high rates on jumbo mortgages (mortgages that are for $729,750 or more.) Even though cash-in home refinancing requires the homeowner to give a cheque, they’ll still save money because they’re lowering their total mortgage amount. Homeowners often also choose cash-in home refinancing in order to avoid mortgage insurance, a costly fee that they could end up paying for several years to come – as many as ten or more, in fact.
Whether you’re choosing cash-out or cash-in home refinancing, you’re still going to save money as a homeowner. The only real difference is that with one, you’re going to get money back and still save money on your mortgage; while with the other, you’re going to have to pay a little bit more (in some cases a lot more) in order to reap the same savings. Either way, with interest rates so low, now is still the right time for homeowners to look at their refinancing options – whatever might be available to them.