July 28th, 2010

“Cash-In” Refi: Refinance When You’re Underwater



One of the major roadblocks nowadays for underwater borrowers is the inability to refinance. In most instances, their negative equity positive puts them out of reach for a much-needed refinance.

Before the housing downturn, when home prices were rising, you could not only refinance to a lower interest, you had the ability to pull some cash out thanks to your home’s equity.

However, with the decline in home prices wiping out equity stakes,  millions of homeowners owe their lender more than their homes are worth. As such, “underwater” borrowers may have to pay cash upfront to take advantage of today’s historically-low mortgage rates.

How much cash upfront?’s VP Keith Gumbinger says “You’re going to pony up what is probably the equivalent of another down payment“:

Suppose, for example, that you bought a home several years ago, when fixed mortgage rates were 6%. You paid $200,000 and put $10,000 down. You currently owe $180,000, but your home’s value has declined to $160,000. To refinance to a lower rate and avoid private mortgage insurance, you’d probably need to put in $25,000 to $30,000, says Bob Walters, chief economist for Quicken Loans.

Cash-In Refis Not Just for the Underwater

Underwater borrowers aren’t the only ones who have been taking advantage of cash-in refis. Homeowners looking to shorten their terms or accelerate the payoff of their loan have also utilized this strategy:

Often, these are people who didn’t lose their jobs or homes during the downturn, and still have good credit scores, Hsieh says. They have some extra money, but don’t trust the stock market, and are tired of earning abysmal rates on low-risk investments.

“You have consumer psychology coming out of a very challenging recession, low (mortgage) rates, and a lack of options for putting your money to work,” he says. “All of that together created a perfect situation where cash-in really makes sense.”

Crunch the Numbers

As with any form of refinance, borrowers need to sit down and crunch the numbers before pulling the trigger. Due to the fact that borrowers are putting down a hefty sum upfront, they need to know that it’s going to take longer to reap the benefits than with a typical refinance.

Got to be In it for the Long Haul

The cash-in refi really seems to make the most sense for borrowers who are in it for the long haul, borrowers who plan on being in their homes for quite some time.

“Are you going to be there long enough at the very least to get your money back?” Gumbinger says. “That’s your primary consideration.”


If the value of your property appreciates, you could see your break-even point greatly accelerated. However, if home prices continue to decline, just the opposite may happen.

READERS: Has anyone out there tried a cash-in refi? Even if you haven’t, tell us your opinion on this refi strategy.

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One Response to ““Cash-In” Refi: Refinance When You’re Underwater”

  1. Efinity Mortgage Says: July 28th, 2010 at 2:15 pm

    In Texas, we are definitely experiencing down payment requirements of 20% for refinancing as well as traditional mortgages.

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Tim Manni is the Managing Editor of and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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