If you’re in the process of refinancing your home mortgage, you may notice a figure on your Loan Estimate labeled Cash to close “to borrower.”
What does Cash to Close ‘To Borrower’ mean in Refinance?
As a refinancing homeowner, this cash-to-close amount represents additional proceeds that will be paid out to you when the new mortgage closes. It is the money going back into your pocket, not the money you owe.
Where Does This Cash Come From?
In some refinances, the new loan amount is intentionally set higher than the payoff balance of your existing mortgage and fees of the refi. The difference results in cash proceeds back to the borrower.
For example,
- Say your current mortgage balance is $250,000.
- But you qualify for a $260,000 refinance loan based on your home value.
- After covering the $250,000 payoff and $5,000 in closing costs,
- $5,000 is left over as proceeds to you.
The loan officer structures the approval this way to put cash in your pocket while keeping the new mortgage payment affordable through a lower rate.
Why Would I Get Cash Back?
There are a few reasons your lender may issue a refinance approval with extra proceeds back to you as the borrower:
- You have equity available to withdraw as part of a cash-out refinance
- Rates dropped, so the lender added a cushion to cover future rate lock extensions
- The loan amount includes wiggle room in case closing costs come in higher
- You are consolidating other debts paid off by the new mortgage
- Lender policy is to set the loan amount higher than the minimum needed
Essentially, the lender builds in a buffer that results in leftover funds to be disbursed to you at closing. This cash to close ‘to borrower’ amount is a welcome benefit!
What Should I Know About This Cash to Close ‘To Borrower’ Number?
It’s important to understand a few key points about this cash-back figure:
- The amount on your final Closing Disclosure determines the exact proceeds you’ll receive. It may differ from the initial Loan Estimate.
- You’ll get the funds in the form of a check mailed to you or wired after closing.
- Be sure you know the source of the funds and that it’s valid. Question any unclear fees.
- Receiving proceeds does not automatically mean it’s a cash-out refinance.
- Consult your CPA – tax implications may apply to cash-out proceeds.
The cashback to you at closing can be a nice perk of refinancing!
Get more clarification on
- What is cash to close?
- Difference between Cash to close To / From borrower
- What is Cash to close To Buyer?
- How to calculate cash to close?
Just be sure to clarify the amount and reason for the proceeds with your loan officer.
