Cash-in (not out) Refinancing: Is it Right for You?

After years of pulling money out of their homes, a record number
 of Americans are now pouring money back into them. This trend, called cash-in refinancing, is simply homeowners putting money into their home to make up for the equity they lost in the recent downturn. 22% of all refinancing in the second quarter of 2010 were cash-ins. While, this may seem counterintuitive, it makes perfect sense for many people.

Why would a homeowner want to invest money into a home that is worth less?

#1 To take advantage of Record Low Interest Rates (currently hovering in the low 4&;s) – Often, to qualify for a traditional refinance loan in this tight credit environment, individuals need 20% equity. To get to this equity number, many homeowners need to invest in home improvements to increase the value of their property. This makes perfect sense for many because, while they may need to invest $10,000 in new replacement windows, they could be lowering their mortgage payments by well over $100/month (for the next 30 years) with the new rock bottom rates. Long-term, this could be a better return than any mutual fund or stock pick!

#2 Get rid of PMI (private mortgage insurance) – Yes, that pesky additional $120/month you need to pay when you don&;t have 20% equity. By investing a few thousand dollars upfront now, many homeowners are dumping this extra monthly charge and enjoying their new home improvements at the same time.

#3 Reducing their mortgage term – Don&;t want to pay your mortgage until your 75? If you can afford it, make higher payments with a 15-year mortgage. You will get a great rate (right now probably under 4%) and pay much less in interest over the life of the loan.

#4 Ditch the Jumbo – Want to get out of that jumbo loan and it&;s higher rate? Cash-in refinancing may be a way to solve your problems.

#5 Many home improvements hold their value very well. – When you invest in the stock market, you can&;t sit in your living room and enjoy the view through your new replacement windows. Investing in your home with home improvements provides a vehicle to protect your wealth and bring you and your family enjoyment at the same time.

There is no better time than now to invest in your home. Many home improvements are covered under the 2009/2010 home improvement tax credits. To see which home improvements are covered, check out our Free Guide: Home Improvements Tax Credits Explained

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