What Is a Limited Cash Out Refinance?

A cash out refinance gives a borrower cash at closing.

In a cash out refinance, additional equity is used to pay off other debt or give a borrower cash back at closing. With a limited cash out refinance, this amount is limited to the lesser of 2 percent of the loan amount or $2,000.

Significance

A cash out refinance carries a higher interest rate than a no cash out refinance, in most cases. The limited cash out refinance option lessens the impact on the rate for the borrower.

Function

The limited cash out refinance allows a borrower to pay off small debts or to use the extra cash to purchase furniture or other small needs for his residence.

Types

A limited cash out refinance can be a fixed or variable interest rate mortgage. Additionally, the term of the refinance can be from 10 to 40 years.

Misconceptions

If the borrower rolls or includes the closing cost in the mortgage itself, it is not considered a cash out mortgage.

Considerations

There must be enough built-up equity in the home to support the extra cash placed on the new mortgage debt.

References

• CGB-AFS.com: Limited Cash Out Refinance
• The Federal Reserve Board: A Consumer's Guide to Mortgage Refinancings