The name itself conjures up images of ATMs: cash-outs.
You may associate the term “cash-out refinancing” with the frothy and dangerous days of the real estate boom, when some owners turned their hyperinflating houses into money mills, leveraging their equities to the hilt. That didn’t end up too well for many of them.
But now that equity holdings in homes are surging again, cash-out refinancings are coming back into vogue — this time under much tighter controls by lenders and used for saner purposes by borrowers than they were last decade.
Giant mortgage lender Quicken Loans estimates that about one-quarter of new refinancings are cash-outs. Federally chartered investor Freddie Mac reports that cash-outs grew to 17 percent of all refinancings in the first quarter of this year compared with 14 percent the same period in 2013.
A cash-out refi means that the homeowner extracts more money in a replacement mortgage than the current balance, rather than simply lowering the rate and keeping the principal amount the same as it was before the transaction.