refinance

Do cash-in refis make sense?

The cash-in refinance is often not a homeowners' first choice when he or she decides to refi, but it can be a practical way to get a lower interest rate and save money in the long run.

Refinancing home: What is a cash-in refi?

When a homeowner gets a cash-in refinance, he or she brings money to the closing table, usually to account for depressed housing values and to get a lower interest rate. Since the best refinance rates are often only available to homeowners who have equity in their homes, bringing cash to the closing table is a way to get that coveted ultralow interest rate.

Reasons to get a cash-in refi

There are three common reasons homeowners decide to spring for a cash-in refi.

  • Avoiding PMI. Mortgages on homes in which the homeowner has less than 20 percent equity require private mortgage insurance, or PMI, which can add to the monthly mortgage payment whenrefinancing a home. Buying back equity in the home with a cash-in refi can help the homeowner avoid PMI.
  • To qualify for a conforming loan. Interest rates on jumbo mortgages -- usually those for more than $417,000 -- are higher than they are for less expensive, or conforming, mortgages. Paying down a mortgage to get it below the jumbo mark is a way to get a better rate.
  • Low interest on savings. Because interest rates on savings accounts are currently low, some borrowers decide that putting money into their mortgage makes more sense than letting it gather dust in a low-yielding savings account.

Factors to consider

  • Your time frame. Think about how long you plan to live in the house before you decide to refi.
  • Your emergency funds. Don’t dump out your bank account on the closing table. Make sure you have adequate cash reserves, too.

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