Yale Roth M.A., M.Ed

Is Your Mortgage Rate Higher If You Do A Cash Out Refinance?

This mortgage question I get a lot from homeowners who are considering taking cash out of their home while refinancing – also known as a cash out refinance.

They want to know if the mortgage rate is higher for a cash out refinance.

The answer is “it depends.”

Like many answers about the mortgage process and mortgages in general, the answer isn’t always black or white, which is frustrating to a lot of homeowners.

The mortgage rate isn’t necessarily higher for a cash out refinance; however, the cost to get the mortgage rate may increase.

The reason why there is a qualifier in the answer is because the mortgage answer also depends on the loan to value LTV ratio.

If you’re doing a cash out refinance and if the loan to value ratio LTV is below 60%, there will be no difference in mortgage rate and mortgage lender fees.

If the loan to value LTV ratio is higher than 60%, then the cost to get the mortgage rate may increase, although the mortgage rate will still be the same.  (I’m trying not to be confusing!)

If the loan to value ratio is above 80%, then you’ll see the mortgage rate increase.

The reason is because taking cash out is seen as a greater risk to the mortgage investor, and as a result, there is a premium that the borrower may have to pay to take the cash out.

Now, if the homeowner is consolidating a first mortgage and a home equity line of credit that was put on at the time of home purchase, the refinance transaction will be priced as a rate and term or no cash out refinance.

This applies if the homeowner hasn’t drawn more than $2000 from the line of credit within the past 12 months.

If the homeowner is consolidating a home equity line of credit, also known as a HELOC, and a first mortgage, and the home equity line of credit was put on after the home was purchased, the transaction becomes a cash out refinance and the mortgage rate or cost to get the mortgage rate may be different.

In conclusion, is the mortgage rate higher if you’re doing a cash out refinance?

Not always, it just depends on the loan to value ratio.

The cost to get the mortgage rate may be more expensive if you’re doing a cash out refinance, however.

Related Posts:

• 2 Ways You Can Take Cash Out Of Your Home
• 5 Mortgage Loan Types That May Help You Get What You Want
• Mortgage Questions – “Can You Finance Your Mortgage Closing Costs?”
• Mortgage Questions – “How Long Does It Take To Close The Mortgage?”
• Mortgage Questions – Should I Do A Cash Out Refinance To Pay Off My Home Equity Line Of Credit HELOC?