In a refinance transaction, which option allows the borrower to receive cash back of $2,000 or 2% of the loan amount, whichever is lower?

The concept of limited cash-out refinance is specifically designed for scenarios where the borrower wants to access a small amount of cash while refinancing their mortgage. In this type of refinance, there are conditions that limit the amount of cash that can be extracted from the equity in the home. The policy typically allows borrowers to receive a cash payout, which in this case is capped at $2,000 or 2% of the loan amount, whichever is lower.

This format of refinancing is beneficial for borrowers who need liquidity for minor expenses or to consolidate small debts without conducting a full cash-out refinance, which usually allows for a more significant withdrawal of equity. The limitation on cash-back helps mitigate risk for lenders by ensuring that the loan remains primarily focused on improving terms rather than simply providing cash.

In contrast, a full cash-out refinance would allow the borrower to access more significant amounts of equity without such restrictions. Rate and term refinance focuses solely on altering the interest rate or terms of the existing loan without any cash out, while a traditional cash-out refinance allows for a more considerable cash withdrawal. These alternatives do not align with the specific parameters of accessing a limited amount of cash, making the limited cash-out refinance the correct choice for this situation.