Definition Of Cash-Out Refi In Mortgage

Definition of "Cash-Out Refi"

Simon Westfall Kwong, Real Estate Agent Keller Williams Realty

Refinancing for an amount in excess of the balance on the old loan plus settlement costs. When the main objective of a refinancing is to raise cash, the relevant question is whether the cost of raising cash in this way is higher or lower than raising the same amount of cash with a second mortgage. A cash-out refi with an interest rate below the existing rate is likely to be less costly than a second mortgage. If the cash-out reh' rate is higher than the existing rate, the second mortgage is likely to be cheaper, even though the second mortgage rate may be well above the cash-out refi rate. The reason is that the second mortgage allows the borrower to retain the lower rate on the existing mortgage. Because the APR on a cash-out refi ignores the loss of the existing first mortgage, comparing it with the APR on a second mortgage is meaningless.