Finance
A 'cash-out refinance' allows a homeowner to:
APay off the mortgage in a lump sum
BRefinance for more than the outstanding mortgage balance, receiving the difference in cash✓ Correct
CConvert to a fixed rate without changing the loan balance
DRemove a co-borrower from the loan
Explanation
In a cash-out refinance, the homeowner obtains a new mortgage for more than the existing balance. The difference between the new loan and the payoff of the old loan is received as cash, which the homeowner can use for any purpose.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
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