Cash Out Refinancing Lowdown

Cash-Out Refinance Fraud

The Federal Bureau of Investigation (FBI) arrested Donna June Baker and Lana Mixon on charges of federal mortgage fraud, for using a fake identity to buy and refinance a house. Baker used the identity of a pensioner to buy a home in Atlanta for $1 million, in September last year. She then used the same identity to refinance the property with the First Bank of America.

She doctored the pensioner’s income to show a figure of $23,000 more than he earned each month and cooked up false bank documents and assets in an attempt to gain $100,000 from the scam.
Hampton was arrested on charges of abetting and supporting Baker in falsifying the documents. The duo is scheduled to appear before a US Magistrate Judge in February.

APR as Decision Factor

A cash-out refinance or second mortgage decision situation is one instance where you should ignore the annual percentage rate (APR). This is because the APR does not consider the rate on the old mortgage that you are refinancing.

You may reach the erroneous conclusion that the cash-out refinance is the better option of the two if the rate on your old mortgage is less than that on the second mortgage. The reason for this is that you would have neglected to take into account the loss of the lower rate. 

A good calculator can help you decide on the better option between a second mortgage and a cash-out refinance.

What Constitutes Cash-Out-Refinancing?

What are the kinds of financial transactions that can be grouped under the cash-out refinancing banner? According to the exclusion rule, any refinance that is not a non-cash-out refinance is a cash-out refinance.

A non-cash-out refinance is used to pay the first mortgage that was completely used to buy the property in question. Such a refinance amount is less than the sum of the balance of the loan, the settlement costs, and 2 percent of the new loan amount or $2,000, whichever is less.

Any refinance that does not meet the above conditions is a cash-out refinance. A cash-out refinance generally carries a higher interest rate since statistics state that people who carry out a cash-out refinance have a poor record when it comes to repayment.