When retail stores open early on Thanksgiving weekend, bargain hunters line up for hours to take advantage of great deals. If you follow the trend of those in the know, you, too, can find great opportunities. Mortgage industry professionals are noticing a trend that can help borrowers who have a chunk of cash in the bank get a great deal, as well – the cash-in refinance.

The trend is your friend

Freddie Mac, the corporation that keeps the mortgage market in balance, has identified this trend during the past three quarters, where cash-in refinancing accounted for 36 percent (4th Q09), 19 percent (1st Q10), and 22 percent (2nd Q10) of all refinancings. Simultaneously, the number of cash-out refinancings, which were partially responsible for the recent mortgage meltdown, has dropped to the lowest level since 1985 -- from a high of 88 percent in 2006 to a low of 24 percent, 28 percent, and 27 percent during the last three quarters, respectively.

With a cash-in refinance, you bring money to the table, and refinance your mortgage for a smaller amount than your current loan.

Four reasons to cash-in

There are four primary reasons why this is a logical choice for borrowers:

     1. Getting the best mortgage rate. When you pay down your principal balance, you’re increasing your home equity, and you’ll qualify for better interest rates. During this period of historic mortgage rate lows, this can help you lock in the lowest rate of your lifetime. Also, if you’re underwater on your mortgage, you may not qualify for a mortgage refinance. Bringing money to the closing table can change that.

     2. Eliminating private mortgage insurance (PMI). As home prices drop, the equity in your home dries up, as well. If you want to take advantage of historically low rates, but no longer have 80 percent equity in your property, you’ll need to pay PMI to refinance. If you have money in the bank that’s earning less than 1 percent in a CD or traditional savings account, you may be better off putting that money toward paying down your mortgage, and increasing your home equity to 20 percent or more. This way, you’ll avoid PMI.

     3.  Avoiding a jumbo loan. The rates for jumbo mortgages – loans between $417,000 and $729,750, depending on your market – are higher than those for conventional loans. If you own an expensive home, but can bring your principal balance down so you can avoid jumbo status, you’ll benefit from lower rates.

    4. Shortening your loan term with reasonable monthly payments. Since rates for 15-year loans are lower than their 30-year counterparts, you can grab an extremely low one in this market if you lower your term – but that usually means a higher monthly payment. By paying down the principal balance, you can soften the blow to your monthly cash flow.

When opportunity knocks, use everything in your power to let it in. A cash-in refinance may provide what’s necessary for you to open the lower mortgage rate door.