Does a Cash-In Home Refinance Makes Sense?

During the housing boom, when property values seemed like they were on a never-ending one-way trip up, many homeowners used their property as piggy banks with cash-out home refinancing loans.

Today cash-out refinancing is no longer an option for a troubling number of homeowners, who learned the hard way that what goes up must come down, and now owe more on their mortgages than their homes are worth -- hence the recent trend of cash-in home refinancing.

More than one in five homeowners who refinanced their mortgages in the second quarter of 2010 brought additional cash to the closing table to bring down loan principle, according to Freddie Mac. It was the third highest cash-in share since Freddie Mac started reporting refinance patterns in 1985.

Declining Cash-Out Home Refinance Trend

Those who took cash out as part of a home refinance represented 27 percent of home refinance loans in the second quarter. Freddie Mac reports that the share of cash-out borrowers in the last nine months was the lowest it's been in 25 years.

Today's market gives two main reasons to bring money to the home refinance table:

• Falling Home Values and Tighter Lending Standards

If your home has lost value, you might have to bring cash to the table to qualify for a conventional home refinance loan, especially with today's tighter lending standards. The median change in property values for home refinance loans in the second quarter of 2010 was a decline of 5 percent over a median loan life of four years, according to Freddie Mac.

•Ultra-Low Refinance Rates

Home refinance rates are at all-time lows, so many borrowers are willing to put cash on the table to take advantage of the rates, especially when interest rates on savings accounts and CDs for that cash are at barely perceptible levels.

Thinking about refinancing? Use mortgage calculators to compare your existing mortgage with terms of a new loan and compare refinance loan quotes side by side. If you want to put cash toward refinancing, subtract the amount of cash from your loan principle when you input the "remaining principle on the current loan" in the refinance calculator. Use the amortization calculator to get a full amortization schedule of a new mortgage. And use the loan comparison calculator to compare refinance loan quotes to get the best deal.