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A refinance is the process of paying off any existing mortgages on a home with a new mortgage loan. We also consider the current owner’s placement of financing on a property that is not financed as a refinance transaction. The loan to value is based on the appraised value of the property regardless of the date the property was purchased and initially financed. There are typically two types of refinance – rate/term refinance and cash-out refinance – and each achieves a different purpose. Rate/Term Refinance The purpose of a rate/term refinance is to change to a lower interest rate or change the term of a loan without advancing new money on the loan. Closing costs can be rolled in. The borrower may receive a maximum of 1% of the loan amount in cash at closing. Cash-Out Refinance The purpose of a cash-out refinance is to take cash out/away from the refinance by advancing new money on the loan. The cash taken from the refinance may be used for any purpose you choose(1) (debt consolidation, credit card payments, vehicle purchases or the purchase of the investment property, for instance). Closing costs can be rolled in. For example: $100,000 loan amount $50,000 amount to be paid remaining on the loan $75,000 refinance amount $25,000 excess, cash-out to use for whatever purpose Review the types of loan programs available for refinance. (1) If the borrower received more than 5% of the loan proceeds in cash at closing, he/she may be required to provide a letter explaining the purpose of the cash-out.