<p><img src="https://static2.businessinsider.com/image/60133b9f1d2df20018b7178c-1883/cash-in-refinance.jpg" border="0" alt="cash in refinance" data-mce-source="Morsa Images/Getty Images"></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><ul class="summary-list"><li><strong>A cash-in refinance lets you pay a large sum toward your mortgage principal before closing.</strong></li><li><strong>This can help you qualify to refinance or lock in a lower rate and monthly payments.</strong></li><li><strong>A cash-in refinance is expensive, so consider whether it's financially feasible for you.</strong></li><li><a href="http://newsletter.businessinsider.com/join/4np/personal-finance" data-analytics-module="summary_bullets" data-analytics-post-depth="0" data-uri="11c8ffc9623a75216c65815dd08330db">Sign up for Personal Finance Insider's emailnewsletterhere </a></li></ul><bi-shortcode id="table-of-contents-sticky" class="mceNonEditable" data-type="h2">Table of Contents: Masthead Sticky</bi-shortcode><h2>What's a cash-in refinance'</h2><p>When you apply to <a href="https://www.businessinsider.com/personal-finance/how-to-refinance-your-mortgage" target="_blank" rel="noopener">refinance your mortgage</a>, most lenders want you to have at least <a href="https://www.businessinsider.com/10-ways-to-build-home-equity-2011-10" target="_blank" rel="noopener">20% equity in your home</a>. In other words, they want your <a href="https://www.businessinsider.com/personal-finance/loan-to-value-ratio-mortgage-refinancing" target="_blank" rel="noopener">loan-to-value ratio</a> to be 80% or less.</p><p>What if you don't have 20% equity in your home yet, but you still want to refinance to lock in a better mortgage rate or lower monthly payments' That's where a cash-in refinance comes in.</p><bi-shortcode id="related-article-module" class="mceNonEditable" data-type="5f6500090afbe705b407ef5c" data-title="The best mortgage lenders of January 2021" data-url="https://www.businessinsider.com/personal-finance/best-mortgage-lenders" data-thumbnail="https://i.insider.com/5fbd7f9650e71a00115573be" data-shortcode-display-text="Related Article Module: The best mortgage lenders of January 2021"></bi-shortcode><p>With a cash-in refinance, you make a larger payment <a href="https://www.businessinsider.com/personal-finance/mortgage-principal" target="_blank" rel="noopener">toward your principal</a> to lower your LTV ratio. Let's say an appraiser looks at your home and says its current value is $200,000. You still owe $190,000 on your mortgage. So your LTV ratio is 95%, meaning you have 5% equity in your home.</p><p>You can do a cash-in refinance and pay $30,000 all at once to lower your principal balance to $160,000. Now your LTV ratio is 80% and you have 20% equity in your home, so you're eligible to refinance.</p><p>Cash-in refinances aren't limited to homeowners who need help qualifying to refinance. You may decide to do a cash-in refinance just because you want lower monthly payments, or because lower LTV ratios often result in better rates.</p><aside class="quick-tip headline-regular"><p><strong>You could also just pay extra toward your existing mortgage. But by doing a cash-in refinance instead, you can lock in a lower rate and lower payments.</strong></p></aside><h2>Cash-in refinance vs. cash-out refinance</h2><p>Along with "cash-in refinance," you may have heard the term "cash-out refinance." It's crucial to understand the difference, because they're pretty much complete opposites.</p><p>A <strong>cash-in refinance</strong> lets you pay a large chunk toward your principal when you refinance. It's especially helpful for people who haven't gained much equity in their home since buying it.</p><p>A <strong><a href="https://www.businessinsider.com/personal-finance/cash-out-refinance" target="_blank" rel="noopener">cash-out refinance</a></strong> is a mortgage for people whose homes <em>have</em> gained value since they originally purchased it. With a cash-out refinance, you take out a loan larger than the amount you still owe, and you receive a portion of your home's gained value in cash. You can use the money to achieve other financial goals, like <a href="https://www.businessinsider.com/the-top-5-diy-home-renovations-to-maximize-your-property-value" target="_blank" rel="noopener">making home improvements</a> or <a href="https://www.businessinsider.com/personal-finance/what-is-high-interest-debt" target="_blank" rel="noopener">paying down higher-interest debt</a>.</p><p>Put simply, a cash-in refinance lets you put cash in; a cash-out refinance lets you take cash out.</p><div><iframe src="https://smartasset.com/captivate/frame/umonjdcr" width="100%" height="630px" scrolling="auto" style="border: none;"></iframe></div><h2>Should you do a cash-in refinance'</h2><h3>Pros</h3><ul><li><strong>Qualify to refinance.</strong> There can be a lot of <a href="https://www.businessinsider.com/personal-finance/pros-and-cons-of-refinancing-mortgage" target="_blank" rel="noopener">benefits to refinancing</a>. But you can't take advantage of them if a lender won't approve you to refinance because your loan-to-value ratio is too high. A cash-in refinance lets you pay down your balance so you can refinance.</li><li><strong>Lower monthly payments.</strong> Maybe you already qualify to refinance your mortgage and are wondering if a cash-in refinance is the right move. If you decrease the amount you owe before refinancing into a new mortgage, your monthly payments will be lower than if you had refinanced into a mortgage with a higher principal.</li><li><strong>Lower interest rate.</strong> Lenders typically reward lower LTV ratios with lower interest rates, so a cash-in refinance could help you save thousands in interest over the years.</li></ul><h3>Cons</h3><ul><li><strong>Expensive option.</strong> Not only will you pay thousands (or even tens of thousands) of dollars toward your mortgage in a cash-in refinance, but you'll also have to pay <a href="https://www.businessinsider.com/personal-finance/average-refinance-closing-costs" target="_blank" rel="noopener">closing costs</a>. According to the <a href="https://www.federalreserve.gov/pubs/refinancings/#cost" target="_blank" rel="noopener">Federal Reserve</a>, closing costs can come to 3% to 6% of your principal. Such an expensive transaction simply isn't possible for everyone.</li><li><strong>How you get the money.</strong> Maybe you have a large chunk of money from a work bonus or inheritance ready for a cash-in refinance. But if you don't have the money on hand, how do you plan to get it' Will you <a href="https://www.businessinsider.com/401k-early-withdrawal" target="_blank" rel="noopener">withdraw from your 401(k)</a> or sell stocks' Be sure to consider all your options and weigh the pros and cons before making your decision.</li></ul><p>A cash-in refinance can be a good tool for landing the best refinance rates possible. Just consider whether this is the right financial move for your situation.</p><p><em>Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews. She is also a Certified Educator in Personal Finance (CEPF). Over her four years of covering personal finance, she has written extensively about ways to save, invest, and navigate loans.</em></p><bi-shortcode id="related-content-module" class="mceNonEditable" data-type="more-mortgage-coverage" data-sheetname="More Mortgage Coverage">Related Content Module: More Mortgage Coverage</bi-shortcode><p><a href="https://www.businessinsider.com/personal-finance/cash-in-refinance#comments">Join the conversation about this story »</a></p>
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