Cash out Refinancing Rates – A cash out refinance is when a person or business to pull cash out of their bank account. The amount can be anywhere from several hundred thousand dollars to several million. The cash out lenders will allow you to take the equity out and then lease it back to them for a fraction of the face value. This allows them to earn a return on the money they invested in you in return receives a lump sum cash payment.
Cash Out Refinance Rates – Why Are They Often Less Expensive?
When you get cash out refinance loans, the interest rate will often be much higher than the rates you would get from a current loan balance with a lender. Why? Since the value of the equity is less than the total amount you have borrowed, the lenders must sell your equity to recoup what they have invested. In most cases, they will sell the equity in your home for less than you owed on your mortgage, which is why they offer cash out rates.
Another reason that cash out refinance loans are often less expensive than your current mortgage balance is because home equity is based on a decreasing scale. As you pay down your debt and the equity in your home increases, your home equity value continues to decrease. Because of this, when you refinance, you are essentially turning your home equity on and getting cash out as opposed to borrowing cash and paying interest on the amount that you owe.