When Is Cash Disbursed When Refinancing?

Some homeowners who own their homes free and clear extract equity through cash-out refinances. People with existing mortgages often pay off their mortgages with a new larger loan in order to cash out their equity. The time it takes the lender to disburse the cash depends on several factors, including the type of loan, the day of the week the loan closes, and whether the borrower refinanced with the lender that wrote the original mortgage.

Types of Refinances

Standard refinances pay off existing fixed home loans. Since home equity lines of credit have revolving balances, refinances involving HELOCs are cash-out refinances because they are not paying off fixed-term products. Some people use HELOCs to refinance fixed loans, although most refinances involve moving out of, rather than into, variable-rate loans.

The Federal Housing Administration will insure cash-out refinances that allow borrowers to borrow up to 85 percent of a home's value. Most refinance mortgages only allow borrowers to access 80 percent of their home value.

Time Frame

Borrowers who complete a cash-out refinance with the lender that holds their existing loan have access to funds on the day of closing. People who refinance loans on their primary home with a new lender have a three-day right of rescission. The Federal Truth in Lending Act provides borrowers with a cooling-off period before the loan takes effect. Sundays and federal holidays are excluded from the right of rescission time period. It begins the day after the loan closing and ends at midnight on the third day. Title agents disburse cash when rescission ends.

Considerations

People in need of quick access to cash should schedule loan closings on Monday because funds become available for use on Friday morning. If you schedule a loan closing on Friday you must wait an extra day to receive funds because Sunday does not count in the rescission, and if your loan closing falls on a Thursday or Friday before a bank holiday weekend, you must wait even longer.

Warning

People who refinance with the lender that holds their original loan sometimes cannot access disbursed funds immediately. Many title companies wire funds directly to bank accounts, in which case funds become available if received by the wire cut-off time. The Federal Reserve stops processing wires each day at 6.30 p.m. Eastern Standard Time. Wires beyond that time process the following day. People who receive disbursed funds in the form of cashier's checks must deposit funds at the bank. Most banks place holds lasting seven business days on checks in excess of $5,000.

Misconceptions

People needing fast access to funds often incur less expense when they take out second-lien home equity loans or liens. Cash-out mortgages have higher rates than other mortgages and many people increase the rate on their entire mortgage just to extract a small amount of cash. Taking out a second loan enables people to maintain the low rate of their existing mortgage, reduce many of the closing costs and still have access to funds.

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