U.S. homeowners are sitting on record home equity — over $32.7 trillion, according to the St. Louis Federal Reserve (Q1 2024). The average homeowner has around $214,000 in equity. So, with all this built-up value, why would anyone choose to put more money into their mortgage?
It’s called a cash-in refinance — and for the right homeowner, it could be a smart move.
What Is a Cash-In Refinance?
A cash-in refinance is when you bring additional money to the closing table to pay down part of your loan balance while refinancing. Instead of pulling equity out (as in a cash-out refinance), you’re using cash to reduce your loan-to-value ratio (LTV).
Why Do Homeowners Consider It?
There are several potential benefits:
- Lower Interest Rates: A reduced loan amount often qualifies you for better mortgage rates. In fact, recent data from the Mortgage Bankers Association shows cash-in refinancers lowered their rate by an average of 0.82%.
- Remove PMI: By bringing your LTV under 80%, you can eliminate private mortgage insurance, saving you money each month.
- Avoid Being Underwater: If your home’s value has dropped, cash-in refinancing can help restore equity and improve your financial standing.
What Are the Risks?
While the benefits are clear, it’s not the right fit for everyone. Here’s what to consider:
- Opportunity Cost: That extra cash could potentially earn more elsewhere, like in investments or retirement accounts.
- Reduced Liquidity: Once the money is in your mortgage, it’s tied up. It’s not easy to access again without another refinance or a home equity loan.
- Potential Tax Impacts: By reducing your loan amount, you may lower your deductible mortgage interest — which could impact your tax situation.
Is Cash-In Refinance Right for You?
Ask yourself these key questions:
- Do you plan to stay in your home long term?
- Are your finances stable with enough emergency savings?
- Are you focused on lowering your total interest paid or eliminating PMI?
If you answered yes, cash-in refinancing might be worth a closer look.
Wondering if a cash-in refinance makes sense for you? Let’s review your equity, goals, and loan options to see if it’s a smart move. Contact me today.