Cash-in refinances now represent virtually half of all refi activ

Have you been green with envy about the great deals your neighbors are getting on mortgage refinances? What about you?? I’ve got a suggestion for you that will cost you, but it could be money well spent.

We went through a long era where people were doing cash out refinances 3, 4, even 5 times over as home values ratcheted higher and higher. Now the pendulum has swung the other way. Many people are locked into high cost mortgages that they can’t refi because their homes don’t appraise out. (That was never a problem in the past; we used to get calls to my show about “125s” and “130s,” where they would lend you that much above what your home appraised out at.)

So now, when you want to refi, what can you do? New data from Freddie Mac shows that in the fall of last year, just under half of all refis were cash-in refis. A cash-in refi is the opposite of a cash-out refi. You have to pony up the extra money. So people are now coming to the closing table with money to reduce their mortgage balance so they can refi out of a high-cost mortgage and into a low-cost one.

I’ve been recommending this for a while, and in that time it’s gone from like a speck on the horizon to virtually half of all refis being of the cash-in variety.

This is a situation where I think you should do a cash-in refi even if you have to borrow against your 401(k) (!!!) to pay down that mortgage and get that ultra low rate! Rates are exceptional right now. But it’s unknown how much longer we have in this window of very low mortgage rates. So if you plan to stay in your house and can scrounge up the money, do it.

A typical 30-year fixed rate is 4.8% today, while a 15-year fixed is around 4.2%. (Editor’s note: Rates accurate for March 2, 2011 only.) Think about what a deal that is and what a difference it could make in your life with a much lower monthly carry on your home.