Posted on: 22nd Jan, 2010 10:19 am
I was told by a company when I was wanting to refiance and add the $10,000 second lien, that there was a cash out. What was he talking about?
JL Payne
JL Payne
"cash out" means you're converting some equity into cash when you do your refinance. otherwise the refinance is considered a "rate and term", whereas you're simply changing the terms of your mortgage and the interest rate. it sounds like that company is considering your $10,000.00 second lien as a "cash out", which doesn't make sense to me. lenders usually charge more fees for a "cash out", so i'd be shopping for other lenders if i were you.
this sounds more like an equity loan than a cash out refinance to me. with a cash out refinanice you basically increase your mortgage to a higher level than it currently is and get paid out the difference in cash, but you still only have one loan. the advantage of this is that it has a better interest rate than a separate equity loan which is a separate loan altogether. as the equity loan is considered a second mortgage, it is charged higher interest to compensate for the reduced security.
i think it's a simple matter of the equity loan that was granted earlier not being "seasoned." if that transaction was recently completed, then any subsequent refinance becomes a cash-out transaction.
Fun with lender lingo:
Refinance - A new mortgage loan on a property you already own.
A refinance can be two types:
Limited cash-out - pays off existing acquisition debt (debt used to purchase the home), and may get up to $2,000 cash at closing. Typically called a Rate/Term refinance because you're changing the overall rate and terms.
Cash-Out Refinance - Pays off existing debt of any kind and MAY put cash in your pocket. When paying off credit card debt, a second mortgage, or any other debt not used to acquire the home, even if you don't get a penny in your pocket at the end, it's still a cash-out refinance.
Cash-Out transactions usually have additional costs to the borrower depending on your credit score and loan to value.
For example, a borrower with a 680 FICO, doing a cash-out refinance on a 30 year fixed at 80% loan to value will pay a cash-out adjuster of 2.50 points, plus another adjuster 1.00 points for loans over 15 years. Some of these adjuster may be absorbed by accepting a higher rate.
Refinance - A new mortgage loan on a property you already own.
A refinance can be two types:
Limited cash-out - pays off existing acquisition debt (debt used to purchase the home), and may get up to $2,000 cash at closing. Typically called a Rate/Term refinance because you're changing the overall rate and terms.
Cash-Out Refinance - Pays off existing debt of any kind and MAY put cash in your pocket. When paying off credit card debt, a second mortgage, or any other debt not used to acquire the home, even if you don't get a penny in your pocket at the end, it's still a cash-out refinance.
Cash-Out transactions usually have additional costs to the borrower depending on your credit score and loan to value.
For example, a borrower with a 680 FICO, doing a cash-out refinance on a 30 year fixed at 80% loan to value will pay a cash-out adjuster of 2.50 points, plus another adjuster 1.00 points for loans over 15 years. Some of these adjuster may be absorbed by accepting a higher rate.
boy that was so much fun, howard! :lol: