Some people call me about taking some equity out of their home, this is called a “cash out” refinance. Lately, people have been calling me about putting “cash in” to their refinance to pay the loan down. With property values having fallen in some markets, instead of giving up on refinancing some people should consider paying the loan down by paying some of the principal down at settlement.
It seems these days putting cash into your house may get you a better return than stocks! Freddie Mac says 33% of all homeowners who refinanced a mortgage in the 3rd quarter of this year paid down at least a portion of the original loan. This figure was up from 23% in the second quarter. Freddie Mac began keeping track of these stats in 1985, and they show the “cash-in” share of refinancing activity was the highest since they started tracking these numbers 25 years ago.
Not only is paying down your loan a sign of a real estate market that has gone down in many areas, it is likely a sign of the fiscal times. People seem to feel they have taken on a lot of debt, and its time to pay it down. So “cashing in” may be a wise economic move, or it may just make you feel better to owe less money. Either way, talk through the savings, closing costs and the potential returns on paying down principal with an experienced mortgage professional, it may make sense for you!