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Mini Cashout Refinance: What You Need To Know

08-14-2020About MortgagesEddie Knoell

In this episode, we’re talking about Mini Cashout Refinancing, what it means, the two ways you can use it, and how it can be used to lower your interest rate. Mini Cashouts, are something we came up with, and we’re here to share with you! This episode is all about how to use a mini cashout as a way to take cash out at the lowest interest rates available. We’re going to show two different scenarios. One using the average median home price at $300,000 and on the high end, with a $600,000 home.

What Does Mini Cashout Mean?

First off we’re, we’re going to be talking about exactly what the name means. There’s going to be cashback available with this type of refinancing, and that’s what’s so unique about it. If someone calls us to do a refinance, there are two different options. You can do a cash-out refinance at one rate or another.

Cash interest rates and rate and term interest rates are different, cash out interest rates are higher. This may seem very obvious, but the reason why they’re higher is they hold more risk for the lender. So, not only typically, are you taking out more money, hence the cashout, but it also the purpose behind you’re actually pulling money out of the house versus putting money in. Cashouts will always have in almost all scenarios a higher interest rate than the non-cash out. And at the rate and term refinance interest rates, you can get the best rates and be able to take out some cash. So basically the origin of this is a refinance that I did where I received a little bit of cashback.

Using a Mini Cashout

We’re going to show two different scenarios. You know, the average home price is that average median home price, right. At $300,000, what does that refinance look like on this mini cash out? And what does a mini cashout look like if you are on the high end, a $600,000 home value?

The purpose of this is not for any significant cashback, the purpose of this is for someone who wants a smaller amount of cash to use. We just had a borrower call yesterday and wanted to replace their windows. She needed $10,000, sometimes we’ll get borrowers that need $8,000, $6,000, $7,000, whatever, to pay off some credit cards. This is only for those borrowers that would need, you know, something, you know, less than, than, than $10,000.

Sometimes that’s in the form of, you know, what, it’s been a couple of tough months. They’ve had some bills by doing this refinance, they’re lowering their interest rate. And there, they’re just getting a little bit of reprieve, right? They’re just getting a little break on their mortgage payments. Sometimes it’s the pay off a little credit card, but it’s just to give them a couple of months of just breathing room.

People who don’t ever think about going into a refinance, end up coming out of a refinance, feeling better than they went into it. This is partly because they didn’t realize they were going to be a side benefit to a refinance. This is not a way to take out cash and, you know, keep your same interest rate. We don’t want you to go through all these closing costs, just to receive a little bit of cash. The whole goal is to do both at the same time, lower your rate, and you can get this cash.

$300,000 Home Mini Cashout Refinance

We don’t want people coming in and doing mini cashouts without a real financial benefit. So let’s go over the average example home value of $300,000, of the average loan amount would be probably about $250,000. In this case, I think we said $255,000 and have a monthly payment of about $1,500 a month. If you add up these three categories, this is what is going to end up in that pot of that mini cash out. Number one, the max amount of cashback, you can get on a rate and term refi. So even though we’re calling this a mini cash out, this is still a rate in term product. The maximum you can get back is going to be the greater of $2,000 or 1% of your loan amount, so in this case, it’s going to be about $2,500.

You’re going to be able to skip two months’ payments. Now, what that means is if we close your loan, at the beginning of a month, you do not have a mortgage payment that month. You can skip, and aren’t making your mortgage payment to your old bank. You can actually just add it to your payroll. So, when we close your loan at the beginning of the month, you are no longer obligated to make any payments to your old lender. Cause we refinanced you and you do not have a payment in that month of signing and you don’t have paid the following month. That’s going to be two months, the equivalent of two months’ payment, which is $1,500 times two, about $3,000.

The average escrow refund, is probably a thousand or so dollars, in this case, could be a little bit difficult for people to kind of understand escrow accounts and where these refunds are coming from. If you look at your mortgage statement and you see that you got an escrow balance of X, but you know, you’re going to be refinancing here soon. The escrow money you get back is always different than what’s on your statement. It always depends on what’s been made. What payments have been made on your behalf prior to that loan actually closing? If you’re getting around that, if you’re twice a month or twice a year, you know, when the taxes are due, that gets a little tricky to estimate and then right around your homeowner’s insurance annual renewal.

Show us your statements, and that’s what we’re here for. Those extra refunds can be a little tricky, but, but the average is basically the average refund will be about a thousand dollars. When you add all those up, that’s about $6,600. That could wipe someone’s credit card. Yeah. They’re taking out, they can take out $2,500 from, they actually walk away from closing, from escrow with 2,500, they get the skip two payments and they get a refund probably three weeks to a month later from their old vendor for about a thousand bucks. That’s right. Yeah. The net gain to them, the net benefit to them. It’s not all receiving cash, but the net benefit when you add it all together, it’s about $6,600.

$600,000 Home Mini Cashout Refinance

Let’s take someone with a $600,000 house. Let’s say if their loan balance is $510,000 and they would have a payment around $3,000 for this scenario, the maximum cash out is going to be 1% of the loan amount. So that’d be about $5,100 that they would re they can actually get a check for $5,100 and that would not be called a cash-out, you know? Then the refinances still re-term not a dollar more, you have just one per, so they’re receiving $5,100 in a check or, you know, or wire to them. They are skipping two payments. That’s about this little over $6,000 in payments skipped. And then the average refund, we are estimating on someone like this, that that loan amount would probably be about $3,000.

They asked for a refund, you know, about three weeks after we close your old letter, we’ll mail you about a $3,000 check. It’s just an average. And that you add them all up, that financial benefit from this mini cash out would be about $14,000. This is gimmick-free, there’s nothing in here that is odd or unique. It’s just the reality. Now timing, we just got to make sure that we time it right. Signing and closing your loan early in the month to get two months payment free. That’s key. We can, we can structure that. And you know, again, this is not for all people and sometimes it just is better. Sometimes, you know, the customer, when we talk about all this and we structure it, maybe they’re okay with just one skipped payment.

Is a Mini Cashout Right for You?

This is not for everybody, but this is for a lot of folks and they don’t even realize that they can do it. And that’s why we’re bringing the mini cash out to you guys and hope that it actually made sense. And if you, if want to contact us and ask us, “Hey, tell me more about that mini cashout.” We’d love to let you talk you through it. Thank you so much for watching, listening to this podcast.

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Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.