One Question at a Time, Folks!

Dozens of you

Some of you

One of you asked me after my last post what a cash-out refinance is (Hi Grandma!).  And I hate to keep an audience waiting!

For some reason, “cash-out refinance” has a sort of hokey feel to it.  Like it’s something for the guy who’s been gambling away his wife’s money.  He’s sweating and pulling at his tie saying, “I think it’s time for the cash-out refinance.”   And before I started being the assistant, I even thought regular refinances were for the scum of society.  I’ve since refinanced twice.

In order to get you the right scoop, I’ve pulled in Mr. James Beaver for an interview…

Refinances and Cash-Out Refinances

An Interview with the Boss

Just the Assistant:  First thing’s first…I betcha Dave Ramsey thinks cash-out refinances are the Devil.  What do you have to say about that?

Boss:  Dave Ramsey actually refers people to Envoy Mortgage.

JA:  Oh.  Well let’s break this down super simple.  What is a regular ole refinance?

Boss:  A refinance is a situation where you restructure the debt on your home.  Typically, the goal is lowering the amount of interest you are paying and/or lowering your monthly payment.  Basically, we’re setting up a new mortgage for you.  And the amount of this new mortgage is typically the amount needed to pay off your current mortgage plus any closing costs associated with setting up the new loan.

That’s not always the case.  You can choose to bring money to closing…[at this point James started talking about every scenario under the sun.  I’m surprised he didn’t mention the different lunches you could eat on the day of your closing]

JA:  That’s. So. Interest…zzzzzzzzzzzzzzzzzzzzzzzzzzzz…

Boss:  Christina?  Are you there?

JA:  Huh!?  Oh I’m sorry.  Listen, I just asked you to tell me what a refinance is; not tell me the history of the mortgage industry, so just stick with the questions okay?

Boss:  Got it.

JA:  Okay, now what is a cash-out refinance?

Boss:  A cash-out refinance is a refinance as described above, but the difference being that the new mortgage is for an amount greater than what is needed to pay off the previous mortgage and closing costs.  The result is that you are left with some amount of cash after the loan funds. 

But you have to have equity to make this work.  Your current loan balance, plus the closing costs, plus the cash you are taking out cannot equal more than 80% of the value of the home per a market appraisal. 

Note:  Market appraisal is different from your County tax appraisal – in Houston and a lot of other places, the county appraisal is usually much lower than the market value. 

JA:  Why would someone do this?  Is it super shady people that do this?  Like, people that want to hire a hit man or something?

Boss:  No.  You might do this because you want to pay off other higher interest debt, like credit cards.  Or, if you want to do a remodel project on your home, help pay for college, start a business, etc. 

JA:  Thank you Boss.  Now go answer all those phone calls.

James wanted to go into every example known to man, but I am going to spare you that and open up the line to your questions. E-mail me, or drop your question in the comment section below.  (And please Grandma, let someone else have a turn!)