Difference between a refinance and a cash-out refinance?

Question

Is there a difference between a refinance and a cash-out refinance or is it the same thing? I am confused here. Are all refinances actually cash-out refinances? Are the terms synonymous? Can someone please explain this to me and provide an example?

Andy Webb · Answer

@Matt Wells - it's like saying an elephant is a mammal, but a mammal is not necessarily an elephant.

A cash-out refinance is a type of refinance, but you can have other types, most notably rate-and-term refis.  In the latter case you are changing the terms of the loan, but not necessarily pulling out cash. In a lot of cases you can't pull out much cash (we can usually pull up to $2k out).

You posted this in the BRRRR section, and commonly with that strategy we are buying a property with a high-interest, short-term hard-money or private money loan (think construction or bridge loan), then once the renovations are done, doing a rate-and-term refi to roll into a different loan with a lower rate and longer term.  E.g. going from hard money with a 12 month term and 12% interest, into a long-term Fannie Mae backed loan with a 30-year term and a great fixed rate of 2.75%.

Andy

Whitney Hutten · Answer

@Matt Wells Here is a quick guide to using lending with BRRRRs.  Another big difference is you generally don't have to season title to do a rate and term refinance.  You generally will with a cash-out refinance (though some lenders will allow you to pull up to 2% without seasoning).

David Kelly · Answer

@Matt Wells

If you have equity and could use the cash to put towards something else you can refinance a primary residence up to 80%LTV and 70%-75%LTV on an investment property. The rates for a cash out refinance are slightly higher but still good right now.

You should look at a refinance if your rate is not in the 3’s or lower.

You have the option to do a rate/term refinance and get up to $2000 back, or a cash out refinance for anything over 2k. Keep in mind, you can pay off debt all within the cash out refi.  Meaning the lender/title company pay your debts for you. It’s a great way to pay off high interest credit cards or student loans.

David Robinson · Answer

@Matt Wells A good example for rate and term would be you own a multifamily complex worth 2 million, and you have a 1 million dollar loan for 12 months at 12% interest. You can refinance rate and term, converting to a 30 year at 4.5%. You could also do a cash out  option using the equity, lets say 1.5million loan, converting existing 1million mortgage to a 30 year and getting $500,000 cash in hand for the next investment, with rates generally a little higher for cash out.

David M. · Answer

@Matt Wells

The difference is whether you are walking away with extra cash...

In a "regular" refinance, you get a new loan for the amount owed.  So, lets say you have a loan with $90k remaining in debt at say 5%.  So, you refi and get a new $90k loan at 3% for another 30 years.  simple enough right?

In a cash out refi, you get a bigger loan.  So, using the example above, instead of getting a loan for $90k at 3%, maybe you get a loan at $125k for 3.25%.  As long as your property's value is high enough to support the ltv requirements of the larger loan, you can cash out.  So, now do you see how you've "cashed out" (some think of at as "cashing in")?

Difference between a refinance and a cash-out refinance?

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