Cash-in refinances may be difficult, but should be considered

Are you frustrated that you missed the refinance train when rates were at historic lows? Well, there may be a way to get on the train even now.

Even though mortgage rates are no longer at historic lows, they are still very good. However, most homeowners are spectators sitting in homes that have lost value and can’t refi.

I read in The Wall Street Journal that 90% of refis at the peak of the real estate bubble in 2006 were cash-out refinances. People weren’t necessarily refinancing to get a lower rate; they wanted instead to turn their house into an instant ATM.

Today, though, things couldn’t be more different. Nobody cared about appraisal values in 2006. Now nobody can ignore them as many homeowners find they can’t appraise out to do a refi.

So in 2011, more than 1 in 3 people doing a refi are doing the exact opposite of what was done in 2006 and doing a cash-in refi. A cash-in refi is where you go to the closing table writing a check against your existing mortgage balance so you can refi into a lower interest rate loan.

I know this will freak you out, but I think you should do anything you have to make a cash-in refi happen. The benefits of locking in an ultra low mortgage rate on a home, preferably for 15 years rather than 30, are just phenomenal.

I know I’m asking a lot. I’m asking you to make a severe short-term sacrifice — even borrowing against a 401(k) is not out of the question and I almost never recommend that! Whatever you can do, I want you to do — short of taking out a cash advance against a credit card. (And who knows, maybe I’ll hear from someone in a situation where even that may be advisable!)

Joel, the youngest producer on my radio show, recently bought a shortsale house for half of what it sold for last time and then he got a 15-year fixed rate at 4.375%. It took great sacrifice for him to come to the closing table with enough money for a 20% down payment. But now his monthly mortgage note is $560, not including taxes and insurance. Think about that. People have car notes that are higher than his mortgage payment!!

Editor’s note: This segment originally aired January 2011.