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Understanding Cash Recapture Loans: A Smart Financial Strategy for Homebuyers

When purchasing a home with cash, many buyers might not be aware of a beneficial financing option known as a cash recapture loan. This loan can be a strategic tool to access funds tied up in your property while enjoying lower interest rates compared to traditional cash-out refinancing options.

What is a Cash Recapture Loan?

A cash recapture loan allows homeowners who purchased their property with cash to borrow up to 80% of the original purchase price within six months of acquisition. This type of loan is priced as a rate and term refinance, which typically offers a lower interest rate than a cash-out refinance.

Benefits of a Cash Recapture Loan

  1. Competitive Interest Rates: The potential interest rate on a cash recapture loan can be in the mid-7% range without any points, significantly lower than the rates for cash-out refinancing.
  2. Lower Rates in Any Market: Regardless of the prevailing interest rate environment, a cash recapture loan will generally have a lower interest rate compared to a cash-out refinance transaction.
  3. Quick Access to Funds: Homeowners can access a substantial portion of their home’s purchase price relatively quickly, providing liquidity for other investments or expenses

Considerations for Renovations and Appraised Value

If you plan to make renovations to your property, it’s essential to note that some investors may require a waiting period of at least 12 months before using the current appraised value for refinancing. Additionally, investors may impose limitations on the amount of cash you can receive, often capping cash-out amounts at $500,000.

Cash Out Refinance for Investment Properties

For those looking to cash out on investment properties, the dynamics change slightly:

  • The maximum loan-to-value (LTV) ratio for cash-out refinancing on investment properties is typically 75%.
  • Interest rates for cash-out refinancing up to 75% LTV on investment properties are usually in the low 8% range.
  • Generally, the lower the LTV on a cash-out refinance, the lower the interest rate you can secure.

Strategic Financial Planning

In any interest rate environment, a cash recapture loan based on the original purchase price will offer the lowest interest rate to access the equity in your property. However, if you need to recoup more than 80% of the purchase funds, most investors will require a 12-month waiting period, and the transaction will be classified as a cash-out refinance, resulting in higher interest rates.


A cash recapture loan can be an excellent financial strategy for homebuyers who initially purchase their property with cash. By leveraging this option, you can access significant funds at favorable interest rates, providing flexibility and liquidity for future investments or financial needs. As always, it’s crucial to consult with your mortgage lender to understand all the terms and conditions and to determine the best strategy for your unique financial situation.

Contact us today to learn more about how a cash recapture loan can work for you and to explore all your refinancing options.