Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”

December 12th, 2011 |

Author: yroth

Are The Mortgage Rates The Same For a Cashout Refinance?

When I talk to homeowners who want to take cash out of their home through a cash out refinance, many of them will ask the mortgage question, “Are the mortgage rates the same for a cash out refinance?”

Here’s the answer.

“It depends.”

Sorry… it’s the world of mortgages where little is black and white.

If you’re doing a cash out refinance and the loan to value ratio is below 80%, the mortgage rates will be the same.

However, the cost to get the mortgage rate on a cash out refinance at 80% loan to value ratio will increase.

There are “pricing adjustments” that apply to cash out refinances.

Cash out refinances are seen as riskier loan types than traditional rate and term refinances where the homeowner just wants to lower their mortgage rate or change their mortgage term.

Just put yourself in the position of the lender. If you were making a loan and you viewed the loan as a riskier loan (as the default rate is higher for the cash out refinance as opposed to the rate and term refinance), you would charge a slightly higher premium for the mortgage rate that you’re offering.

However, the pricing adjustments for cash out refinances drop as the loan to value ratio drops.

For example, there are no pricing adjustments that apply to cash out refinances if the loan to value ratio is below 60%.

So, not only is the mortgage rate the same as it would be if you were doing a rate and term refinance, but the cost of the mortgage rate would be the same too.

In conclusion, the mortgage rates are usually the same for a cash out refinance transaction; however, other factors like the loan to value ratio LTV can increase the cost to get mortgage rate.

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