Can I Refinance with Cash Out? - While many believe that the only reason to refinance a home would be to lower the interest rate, one of the most popular refinance motivations is to obtain cash out of the homes equity. The truth is that there is almost no way to borrow money less expensively than using the first mortgage on your primary residence. In most cases, the amount of cash you can receive is limited on by the amount of equity that you have.Many investors use the equity they have in their homes to pull money out and invest into retirement funds and other investment accounts. With rates being at all time lows and as low as they have been over the past several years these investors are making much more money off of the interest from their investment accounts than the interest they are paying on their mortgage loans. Therefore using the equity in your home can be used to start or add to investment accounts. Many times the rate for the mortgage will be much lower than the money you are making from the investment account and the interest on the mortgage loan is tax deductible. So by doing a cash out refinance you may be able to make more money on interest earned from investing than the money you will pay for your interest rate on your mortgage loan; all while obtaining a bigger tax deduction each year with mortgage interest.
In addition to most home equity loans having a lower interest rate than credit cards, you are also able to use the interest paid as a tax write off.
Whether or not you can qualify for a cash out refinance depends on several factors, including your credit score; your debt to income ratio; the percentage of your home's value, or Loan To Value, you want to borrow; whether you occupy the home as your primary residence, a second home or an investment property; how long you have been in the home; the property type (Single Family Residence, Condo, Manufactured, etc.)[and the loan program you wish to use (conventional, VA, FHA, Alt-A, subprime, etc.).
Whenever possible you should use cash taken out of equity to increase your home's value. Adding a pool, deck, or guest house will help maintain or increase the value of your home.
A common use for taking cash out of your equity is to pay off other high interest debt. By consolidating all of your debt into your home mortgage, you can save money on the total amount that you spend each month on debt payments. Where people often run into trouble is when they go back out and rack up more debt on their credit cards, buy a new car, or otherwise create more debt. Debt consolidation should not be used as a way to take on more debt, but rather a way to manage the debt that you already have.
When can I refinance? - Refinancing can be done anytime. However, special attention should be paid to your current loan terms, your ultimate goals with refinancing, any pre-payment penalty you may currently have, and the current interest rates that you would qualify for. Consult a mortgage professional immediately to find out if now is the best time for you to refinance.
One of the best times to refinance is when you honestly feel that you may be at rik of missing a mortgage payment. By refinancing, you can get into a minimum payment loan which requires about half the monthly minimum payment as a conventional loan, and take 1, 2 or even 3 months off from making mortgage payments. Taking this opportunity to consolidate high interest credit card debt can double your savings and potentially boost your tax benefits.
Many people refinance when they are on adjustable rate mortgage right when the ARM loans are getting ready to make their first adjustment. Most people that refinance because their ARM loan is getting ready to increase in rate begin the process roughly 30 days before the adjustment date.
1% Mortgage Refinance - 1% Mortgage Refinance loans, you’ve probably seen 100 different advertisements, but how is it possible? There is really only one big secret to 1% mortgages: 1% minimum payments are below the interest payable on the loan. Once we’ve addressed this feature, most of the other facets of 1% mortgages are relatively logical.
2. Deferred Interest: Often referred to as negative amortization, this concern is commonly cited by journalists as a “negative” because the loan balance may increase over time if the minimum payment is always selected. However, this perspective does ignore the advantages of dramatically increased cash flow in the borrower’s pocket each month and the tax benefits of deferring interest.
Of course, the borrower can choose for themselves whether they want to spend their money paying interest to the bank or if they would rather put the difference into their own pockets.
Your perspective will likely depend on whether or not you are in a position to provide extensive documentation of your income and assets in support of your loan application.
Many of the criticisms of 1% mortgages revolve around the adjustable rate variety of these mortgages, which like all adjustable rate mortgages go up and down with the rest of the market. However, in most 1% mortgages, the minimum payment stays fixed and can go up or down only 7.5% per year. So if your payment in Year 1 is $1000.00 , in Year 2 it can go no higher than $1075.00.
While there are those in the journalism community who believe that 1% mortgages have too much power for your average homeowner, ultimately the decision is in the homeowner’s hands. Make a high payment to the bank each month, or put the money in their pockets.
A lot of this sentiment is an outgrowth of antiquated conceptions of 1% mortgages as a “Rich Man’s Mortgage”, which used to require significant net worth to obtain, and some of it is attributable to equally antiquated “one size fits all” notions about mortgages.
All 1% mortgages are not created equal. While some of them are more suited for investors, long term fixed rate 1% mortgages (often with rates starting a bit higher than 1%) are excellent choices for many "normal" borrowers, with fixed rates for as long as 30 years.
Despite their division, one thing is certain, the popularity of the 1% mortgage is driven by the relentless pursuit of the American dream. There are more homeowners in the United States today than in any other period in history, and many of those who own homes have only been able to accomplish home ownership, which was once a lifelong achievement, in their early 20’s and 30’s, largely because of the extended availability of these 1% mortgages to normal borrowers.
This is a valid risk over short periods of time for all types of mortgages, not just 1% mortgages. Even a traditional principal and interest mortgage does not pay off enough principal over the first 5 years of its life to offset a dramatic short term decline in home values.
During the fixed period, the loan payment and interest rates of fixed 1% mortgages are utterly predictable and can be defined down to the penny. Many borrowers who would prefer a fixed rate can benefit significantly from the 30 year fixed 1% mortgage, which actually carries a minimum payment of 1.95% and a fixed rates in the 6% to 7% range for 30 years.
To find out if such a loan would be right for you, call me at 888-275-6788 for a free consultation.
The key to success with a 1% mortgage is how you utilize the savings. If you use it to pay off other debt at an accelerated pace then it is a smart decision. If you use a 1% mortgage simply because you can't afford the full payment, maybe you should buy a less expensive home. That is the difference between managing debt and eliminating debt.
1% mortgages, which now come in dozens of varieties with start rates from below 1% (some even starting at 0% for a few months after refinance) up to 4% or more, offer astonishingly low payments. Some of them offer fixed rates for 30 or even 40 years, some of them are adjustable from the day you take them out, all of these are basically “1% mortgages” and are extremely popular amongst homeowners today.
2. Flexibility to Control Your Own Money: Unlike a traditional mortgage, which requires a payment to principal each month, 1% mortgages allow borrowers to take the power into their own hands to make principal payments when they want to, e.g. after a bonus or a particularly good year, or to utilize the surplus cash at their own discretion.
4. Maximize Debt Consolidation: Using a 1% mortgage refinance to pay off all of your other creditors, such as credit card companies and high interest rate lenders, means that you can save even more money than with a 1% mortgage refinance alone. Since you aren’t throwing high interest money at your creditors each month, the cash which you save by making the 1% mortgage payment actually goes into your pocket, your savings, your investments or wherever you need it most. That's ultimate control.
5. Turn Equity into a Tax Deduction: First, the 1% mortgage payment is 100% interest and therefore should be 100% tax deductible in most cases. Secondly, One of the most attractive benefits of 1% mortgages is the additional tax deduction available on deferred interest.
SO HOW DOES A 1% MORTGAGE WORK?
In fact, 1% mortgages are more than just the 1% start rate. They have a fully indexed rate as well, which is the true amount of interest due each month. When making a 1% mortgage minimum payment, the borrower is not paying all of the interest due, which is seen by some as a good thing and some as a bad thing. Let’s examine some of the commonly perceived benefits and caveats of 1% mortgages:
Because the rate on the loan can change more or less than the minimum payment, which is extremely low, the loan can result in the deferral of interest if only the minimum payment is made. Many of the amortization issues which are seen by critics of 1% Mortgages as their key detractor have been recently resolved by the introduction of fixed rate minimum payment loans to the 1% mortgage family.
Whether or not a 1% mortgage refinance is right for you should be determined by performing a detailed analysis of your personal financial situation with a home loan professional who has extensive experience with 1% mortgage products and strategies. As always, we welcome your calls and emails.
1% mortgages and their offspring are being used for debt consolidation, cash flow management, investments, and for tax purposes, and they are being used a lot.
Its opponents tend to think that the 1% mortgage is a bit too sharp for the average homeowner to handle, they fear “Average Joes” could conceivably cut themselves.
Commonly Perceived Benefits of the 1% Mortgage Family:
1. Extremely Low Monthly Minimum Payment: As we’ve seen in our example, the minimum payment option is less than half of the typical traditional mortgage payment.
With a 1% mortgage minimum payment, that $1800 difference in payments is money in the borrower’s pocket, to invest or spend at their discretion. By deferring interest using a 1% mortgage, the borrower has full access to money that normally would be locked up until they sold the property.
6. Easy Qualification: Normally, to qualify for low payment mortgages, borrowers are required to have exceptional credit. However, 1% mortgage refinance loans are routinely available to borrowers with credit scores as low as 620, and if they are borrowing less than 80% of the value of their home, scores can even be in the 500s provided there are no late mortgage payments reported on their credit file. The borrower’s income can be stated, and sometimes no income or employment documentation is required at all.
Commonly Perceived Caveats of the 1% Mortgage Family:
1. Artificially Low Payments: Because the minimum payments are so low compared to traditional mortgages, many pundits fear that people who would normally not qualify for home ownership can now own a home. The fear is that new or “low income” homeowners could “get in over their heads” by buying more house than they can truly afford. Ultimately, it is up to the borrower to decide how much they can afford.
4. Too Easy To Qualify: This may not seem to be a disadvantage to most borrowers looking to purchase or refinance a home, but there are those who believe that borrowers should be forced to document significantly more income and assets to qualify for these types of loans.
And homeowners seem evenly divided, as refinances into loans from the 1% mortgage category are projected to represent over 50% of all refinances in 2007. Traditional mortgages are not a one size fits all solution, and neither are 1% mortgages, but with low minimum payment options, excellent debt consolidation capabilities, significant cash flow and tax advantages made possible by deferring interest, and flexibility to control your finances or insulate yourself from interruptions in income or disability, 1% mortgages continue to post significant growth across the country.
That $1800 per month adds up to over $100,000.00 in cash over 5 years on a 1% mortgage, and it’s available every time your paycheck does not get used up paying a huge traditional mortgage payment each month.
What this means is that borrowers can realize a tax deduction on interest they did not have to lay out the cash for, and choose the time at which this deduction is realized, which can be a huge savings upon liquidity or refinance. For real estate investors, this is a huge advantage as it can often wash out the capital gains consequences of selling a property.
Disclaimer: We do not dispense tax advice, and you should consider consulting a CPA.
8. Biweekly Payments: A popular way to maximize the benefits of the 1% mortgage refinance is to elect to make biweekly payments (which are available on select 1% mortgages). This optimizes the loan to coincide with most borrower’s payment cycles and reduces any possible negative effects of deferring interest.
3. Depreciation: If the value of the borrower’s home falls dramatically, and other factors force the borrower to sell the home while the value is low, the borrower may wind up owing more than the home is worth.
The risk of property values declining is a real risk of owning property, period. However, history tells us that residential real estate appreciates consistently over any given ten year period in the past 50 years.
Fixed rate 1% mortgage variations, the latest additions to the 1% mortgage family, have fixed interest rates from 3 to 30 years or more. The minimum payment option is generally available for the first 5, 10, 15 or in some cases 20 years of the mortgage, at which point the 1% mortgage payment recasts or readjusts to the interest only payment or the full principal & interest payment.
It’s easy to see why the 1% mortgage refinance is so heavily marketed as a way to cut your mortgage payment in half. In the above example, the 1% mortgage minimum payment option is 60% less than a typical, traditional principal & interest loan payment. 1% mortgage minimum payments are usually 50% lower than even the highly lauded Interest Only payment mortgages, and most loans in the 1% mortgage family include the ability to pay more than just 1% if need be.
3. Separate Cash Flow from Equity: While many personal finance pundits laud the benefits of building home equity, the reality is that investing home equity yields a 0% return on investment on a month to month basis. In the above example, paying the traditional principal and interest payment forces the borrower to invest $1800 more each month in their home, money which is locked up entirely in the equity of the home.
Home Equity is illiquid, meaning all this money locked in equity cannot be accessed unless the home is sold or refinanced. The bank won’t cut the borrower a check each month for accumulated home equity in a traditional loan.
A full 40% of home loans originated in 2005 and 2006 are estimated to be from the 1% mortgage family, with multiple payment options. By their proponents, the success of the 1% mortgage has been hailed as a new era of affordability and flexibility, of an extremely sharp financial tool once available only to the very rich now available to every family in the country.
How much less expensive is a 1% mortgage payment option versus the comparable 30 Year Fixed traditional principal and interest payment?
FOR A $500,000.00 MORTGAGE:
1% Minimum Payment : $1200.00
Normal Loan Payment: $3000.00
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Cash Flow / Savings: $1800.00
Let’s say that in our $500,000 1% mortgage example above, we rolled in $30,000 of credit card and other high interest debt that have a monthly minimum payment requirement of $1,000. By using a 1% mortgage refinance to pay off those debts, total monthly savings using the earlier example would be over $2800 per month, $1000 from the debt consolidation plus $1800 from the difference between the traditional loan payment at 6% and the 1% mortgage minimum payment.
7. Enhanced Protection from Foreclosure: Because the minimum payment option is so low, the cash savings each month so high, and the loan is so flexible, the 1% mortgage family offers homeowners a low minimum payment option which they have a much higher likelihood of paying should they suffer an interruption of income or become disabled.
Cash-Out Refinance - A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.
Of course, the best way to tell if a cash out refinance makes sense is to actually sit down and do the math. You can consult a refinance calculator and a home equity loan calculator and figure out how much you will save in the long run. Compare the total amounts you will spend in interest and fees. Contacting a loan specialist should be able to help you figure out what makes sense for your needs.
In many cases you can include the total closing costs for a refinance transaction within the new loan. This allows the borrower to refinance the property with minimal out of pocket expenses.
Cash out sometimes hinges on the value of your property. So talk to your lender and see what the comparable values (comps) are for your property before moving forward.
With a cash-out refinance you can usually avoid getting a higher rate as long as you keep your LTV (Loan to Value) below 70%. So if you have a home worth 100k and you want to try to avoid the higher rate, try to keep your new loan amount at 70k or lower.
When you refinance and take cash out to pay off your bills and consolidate debt, not only do you save the trouble and expense of writing and mailing all those different checks each month to all of your different creditors, you also can save up to 50% or more off of your current total monthly expenses. This puts money in your pocket each month, and can save you thousands of dollars each year.
Normally the only out of pocket expense for a refinance transaction is the appraisal fee which is paid COD when the appraisal takes place.
In Texas, the cash out refinance is limited at 80% LTV for an owner occupied property. Also, once the mortgage is refinanced as a cash out loan (Home Equity Mortgage), the mortgage needs to be refinanced as Home Equity mortgage in future refinancing. Once it was a cash out loan, it will forever be a cash loan until the property is sold.
Rates on cash out home loans are typically much lower than those on credit cards and other types of consumer debt.
Cash-Out Refinances allow you to use your homes equity now. Instead of waiting till you sell the property you can use the appreciation for things that matter now. Common uses for a Cash-Out Refinance are paying off student loans, credit cards and cars. Some people use the money for a much needed vacation!
Note: If you are refinancing to consolidate non real estate debt, you are doing a cash out even though you may never receive any cash directly.
Texas cash out loans have some of the strictest guidelines available. Homestead owner-occupied properties can have an LTV no higher than 80% and the homeowner must have a 12-day waiting period before closing.
By taking a cash out loan to pay off credit cards or other debt, you may be able to write off the interest on your taxes. You should talk with your tax advisor for more specific details.
The interest rate charged on the "cash out" portion may be less than the rate charged on a credit card. Using this financial tool to pay off high interest rate debt should be considered when consolidating loans.
Most loan programs call for the borrower to have 2 to 6 months of reserves after all closing and settlement costs of a refinance. This means if your total monthly payment (PITI) was $2500, you would be required to have verifiable and often seasoned money in liquid assets of $5,000 to $15,000. Fortunately, some lenders actually allow the borrower to count the "cash in hand" or residual cash received outside of settlement to count for this requirement. Thus, if you were getting $20,000 cash out net after all other expenses and pay-offs, your reserve requirement would be met without verifying personal liquid assets.
Most borrowers expect their payment to go up with a cash-out refinance, but you may actually be able to lower your payment AND take cash out. Your interest rate, LTV ratio, and cash out amount will all come into play.
Cash out loans frequently allow consumers to save money by paying off higher interest rate debts with the proceeds from their refinance
Cash-out refinance differs from a home equity loan (HELOC)in a couple of ways. A home equity loan is a separate loan on top of your existing first mortgage. A cash-out refinance is a replacement of your existing first mortgage. The interest rate on a cash-out refinance may be lower than the interest rate on a home equity loan.
Need money for College? Refinance your home now and fund your child's education while reaping the tax benefits.
Cash-out for funding an investment makes sense. Instead of remaining dormant as equity in your home let your money work for you in an investment vehicle.
States and Lenders both have there own ideas on what is cash out and what's not. It's best to find a good broker to work with that is knowledgeable with both state and lender guidelines.
When a borrower finances a new mortgage, that is more then the balance on the present mortgage, and take the cash difference for other uses.
Cash-out refinancing differs from a home equity loan in a couple of ways. First, a home equity loan is a separate loan on top of your first mortgage; a cash-out refi is a replacement of your first mortgage. Second, the interest rate on a cash-out refinancing is usually, but not always, lower than the interest rate on a home equity loan.
The holidays are nearing and your short on cash. You can do a cash-out refi instead of using credit cards and you will enjoy a lower rate and payment.
Your home is one of the quickest growing investments. You can cash out in some cases up to a 106% of the house value depending on several different factors. A lot of borrowers use the cash out for home improvements, pay off high interest credit cards or personal loans, pay for school, personal use, etc.
Some types of properties will have cash out restrictions. You should check with your lender or broker to find out what types of properties have them and what the maximum loan-to-values (LTV) are for those properties.
You can take cash out for many reasons, home improvement, debt consolidation, vacation funds or just extra cash on hand.
Some borrowers treat their home like an ATM machine, drawing upon its equity at every increase in value.
When you default on most personal debts, you cannot be forced to sell your home in most cases, whereas defaulting on a mortgage loan can end in a foreclosure. When doing a Cash Out Refinance to consolidate credit card debts, keep in mind that you are turning non-secure debts into a lien on your home.
Depending on you credit you are not limited to 100% of the value of your home. With good credit you can take out a loan to 125% of the value of your home.
In addition to the value of your property, you may be limited by your FICO score and how many late payments you have made in a 12 month period as to what Loan To Value (LTV) you can cash out to. A poor credit rating may mean a lower LTV that you can cash out.
Another popular use of the cash out refinance is to buy investment property. Sometimes first time investors will do this to get equity out of their primary residence for their first purchase and then snowball it using the same type of cashout loan to keep acquiring property.
Often investors use a product called a "no seasoning" home equity line.
They regularly use this to reap the equity from a property bought below market generally to reinvest in a new property. What "no seasoning" means is that the property could have been bought and closed on yesterday, and have a new loan taken out against it today.
Cash Out mortgages usually carry a slightly higher rate but lenders will often times allow up to 2000 dollars to be given to the borrowers at close before it is officially considered a cash out refinance with the higher rate.
Simply defined, cash-out refinancing is when you refinance your mortgage for more than you owe on your existing mortgage(s), then pocket the difference
Pay off those high-interest rate, non-tax deductible credit card bills now with a cash-out refinance or a home equity line of credit (HELOC). Contact your trusted local mortgage lender today!
Cashout-Refinance also considered in Debt-Consolidation or Cash in hand. Money can be used for a future investments, College, IRA, or Retirement Account. Money can be used to pay off current monthly debt which could lower your personal Debt to Income. Consult a Mortgage Professional in regards to how much you should extract from the EQUITY built into your HOME.
In Texas, once a cash out, always a cash out. That means any more refinances down the line will have to conform to Texas cash out rules until the homeowner sells the home.
There is no better way than to combine all of your non-deductible debt and turning is to all deductible. This is also a great way to free up ecash for investing.
A cash-out refinance is the process of taking out a new mortgage at an amount that exceeds the existing balance on the current mortgage in order to refinance the original mortgage and receive additional cash for other uses. A cash-out refinance will often carry a slightly higher interest rate. The higher rate is based on studies of delinquency and default which indicate that borrowers who do a cash-out tend to have poorer payment records than borrowers who don’t. The theory is that borrowers who need cash are financially more vulnerable than borrowers who don’t, and in some cases they may be more likely to fall behind on their mortgage payment.
Keep in mind that you may have to pay for private mortgage insurance if you borrow more than 80% of the value of your home even though you are refinancing and not purchasing your home. In order to avoid this, make sure you do not exceed the 80% mark. If you must, talk with your mortgage professional about the ways you can avoid PMI.
Five Reasons to Refinance - Five Reasons to Refinance Your Mortgage
There is an old adage that says if you can improve your interest rate by at least two percentage points, then it is a good time to refinance. While that may work as a general rule of thumb, the truth is there are other reasons to refinance:
1. Lower your interest rate
Securing a lower interest rate is one of the top reasons for refinancing. This can make a big difference in your monthly out-of-pocket costs for housing and save money on financing fees.
2. Build equity faster
If you are in a position to make higher monthly payments due to an increase in salary or other good fortune, you may want to switch from a 30-year loan program into a 15 or 20-year loan structure. This enables you to build equity faster and save a tremendous amount of money on financing fees.
3. Change your loan program
Many homeowners who start with Adjustable Rate Mortgages desire to move to the stability of a Fixed Rate mortgage later on down the road. As interest rates fluctuate, making original deals less attractive, people will change their loan programs in order to capitalize on the best rates available.
We can provide you with loan comparison charts to find out what you can save with various loan programs.
4. Credit score has improved
If your credit score has improved as a result of making your mortgage payments on time and in full, you may be in a position to take advantage of your improved credit standing.
We can review your current credit score, the terms of your existing mortgage, and review options for other loan programs that could not only reduce your monthly payment, but also save on interest fees paid over the life of the loan.
5. Use the equity you have established
A cash-out refinance allows you to tap into the equity you have built up in your home. You may want to pay off revolving credit card accounts, send a child to college, or use the money for home improvements or personal expenses.
Regardless of your reasons for wanting to refinance, my team and I are interested in helping you make a decision that works best for you.
We will begin by reviewing the terms of your existing mortgage program. It will be important for us to know the purpose of the refinance and how long you plan to stay in the home. This helps us to determine whether or not it is beneficial for you to pay points up front to secure a lower interest rate on your new financing.
Throughout the process, we will present you with spreadsheets outlining various loan programs, and continue to monitor rates in order to inform you of the best time to refinance.
Contact Darrin L Neu at 888-275-6788 or info@bestnodocloans.com for an analysis of your unique situation and to see if refinancing your mortgage will benefit you.
You may consider refinancing if you have a variable rate second mortgage which you would like to roll together with your first mortgage, for one lower monthly payment which is fixed.
Do you have children near college age? Tuition can defiantly strain a families budget, so many people take cash out of their home equity to help with these new costs. Other people take cash out for investment, or home improvement. Refinancing is one way to help with today's high cost of living.
Another reason might be if someone has just added huge escrow debt due to their backed tax that the lender paid on behalf of the borrower. Since the lender wants to get this money back within 12 months period, the borrower's monthly payment gets increased substantially. Refinancing will usually spread the borrowed escrow money over 360 month payments and thus level out your monthly obligation.
Some people will refinance if their financial situation has worsened or changed and they need to try and lower their payment(s) by increasing their loan term. Sometimes a borrower may be on a term that is less than 30 years and by increasing their loan term to 30, or even 40 years the borrower may be able to save a considerable amount of money and lower their monthly mortgage payments. This is one of the many reasons why some people refinance.
It's common for clients of ours to refinance in order to cover the home improvements they have planned on the home. While it will add on to the balance of your mortgage, it's also likely that the improvements made to the home will increase the value of your home. If by adding the improvements to your home you can add more value to the property than the actual cost of the improvements, the addition becomes free and you actually make money in adding the improvements.
Traditionally in days past, the primary reason to refinance was to lower the interest rate. Nowadays, with the huge variety of different loan programs that each offer some specific financial advantage to a homeowner depending on his particular situation, lowering the rate is no longer the primary reason for a homeowner to refinance.
Should I refinance into a Pay Option ARM - Pay option ARMS are not for every borrower but there are a few borrowers that can benefit from the Pay Option ARM mortgage programs available today.
Self-Employed and Commissioned workers- With the flexible options in the Pay option programs these borrowers can adjust their monthly payments according to their monthly earnings.
Borrower’s with high consumer debt– By lowering their mortgage payment these borrowers are able to pay of higher interest debt faster.
When considering whether to refinance into a Pay Option ARM, always keep in mind that Pay Option ARM can create negative amortization. Negative amortization occurs when a home owner makes the minimum monthly payments, which are less than the interests incurred, and ends up owing more than what the homeowner owed originally. Most Pay Option ARM programs re-adjust the payments every year so that the loan balance would not be too much more than the original loan amount.
Ask your mortgage broker to review your situation and see if you could benefit from the pay option ARM programs. If a pay option ARM is not for you there may be better programs based on your situation.
Option Arms are a good choice for:
-Increased cash flow on investment properties
-Areas with high appreciation
-Lower payments in order to invest and payoff debt
-People who have unpredictable incomes.
Taking cash out through an Option ARM mortgage is a great way to separate cash from equity to start a business, make an investment or otherwise improve your quality of life. They are a powerful financial tool in the right hands, and when used responsibly can dramatically improve your lifestyle.
Some Option ARM's specifically have SOFT pre-payment options. This gives you the flexibility of selling your home without paying the pre-payment penalty or refinancing with the same lender to have your pre-payment penalty waived. This gives you the flexibility of the Option ARM without being stuck while the market drastically changes on you.
Pay Option ARM's are generally not meant to be programs that one stays with for long periods of time, such as 10 years or more. Pay Option ARM's can incur negative amortization which means instead of your mortgage balance going down it actually increases. Most Pay Option ARM's have a cap that will not allow the balance of your loan to increase higher than 115% of the appraised value of your home. Most also have a rate cap that states the rate can't increase any higher than 9.95%. These numbers may vary slightly so check with your mortgage broker on the exact details of your loan program.
Before deciding on an Option ARM first determine why you are considering a refinance. Are you refinancing to save money each month? Would you like to get some cash out? Do you live in a rapidly appreciating area?
The Pay Option ARM gives you 4 "options" to make your payment.
(1) The minimum payment.
(2) Interest only payment.
(3) 30 year fully amortizing payment.
(4) 15 year fully amortizing payment
If the house you are living in is not your last house or it is a stepping stone towards a bigger purchase down the road then a payment option arm may be a good fit for you. You save additional money each month with flexible payment options and in turn your house takes on the financial burden. So if you plan to sell your place in the next few years the payment option arm should be an option to consider.
The pay option arm is also a great tool for seasonal workers. If you are a painter, and know that the majority of your income comes from the summer months, then you could adjust your payments to those months. You would be able to pay more on your mortgage while you are making more money, and pay less during the months that are typically slower for you. This would leave more cash in your hands during those slow months.
A Pay Option ARM is also a great tool for property investors. It gives you flexible payments that can help in months when the property is vacant, or in the event repairs are needed it can be used to offset the cost of repairs rather than using cash out of pocket.
Avoid Payment Option Arms with high margins and three year pre-payment penalties. On most Option Arms the rate changes monthly according to a specific index and is determined by adding the margin to the index. The higher the margin the higher your rate will be. If the loan contains a pre-payment penalty and you want to refinance to avoid an increasingly higher rate, it will cost you thousands of dollars.
Make sure that you have your mortgage professional clearly lay out the terms of your particular loan program. Pay particular attention to your fully indexed rate and to any pre-payment penalty that is attached to the loan.
If your household, like many in the US today, seems never to have enough cash every month and you find yourself constantly turning to credit cards or other expensive debt, this loan may be quite helpful. The Pay Option ARM can free up needed cash every month and help you avoid the other, more expensive kind of debt.
The Pay Option ARM is also a great way to pay down credit card debt, without laying out additional cash on a monthly basis. This method of managing your mortgage provides interest savings as well as it will usually provide some sizeable Taxes savings.
When to refinance - When is a good time to refinance? "I have heard that lowering my rate by a minimum of 2% is the only time I should refinance, is this correct", asks one borrower? A good time to refinance depends on your individual situation. Only refinancing when you can lower your rate by at least 2% is an old myth. There are many reasons to refinance your home mortgage loan and many times when refinancing can help you. Talk with a mortgage adviser to see what loan programs are available for you and if refinancing your home would make sense.
A good time to refinance is when the interest rates get much lower than when you obtained your home mortgage loan. By refinancing to a much lower rate you can not only save a lot of money from your monthly mortgage payment, but you can also look into cutting your mortgage term down from 30 years to 20 years and still be able to lower your mortgage payment. By lowering your mortgage term you can generally save 10's of thousands, and sometimes 100's of thousands of dollars in mortgage interest alone. Therefore, it is a good idea to pay attention to the interest rates from time to time to see where they are at or check with your personal mortgage representative occasionally to get an update from him/her.
If you are currently paying private mortgage insurance (PMI) and know that your property value has substantially increased, and then it would be in your best interest to refinance. With property values increasing, your loan-to-value will be decreasing, which means that a rate and term refinance will eliminate the PMI and start saving you money immediately.
When you need to get cash out of the equity of your home you can refinance to obtain this. Refinancing your mortgage to get cash out can be done as a first mortgage refinance, or the cash out can be obtained by getting a HELOC, a home equity line of credit, or a second mortgage. All options can provide many benefits but you must talk with a licensed mortgage advisor in order to see which option will be ideal for your particular situation.
You may want to consider a refinance if you have some expenses coming up such as:
College tuition
Weddings
Home Improvement
These are just a few reasons why you may need to refinance your current mortgage.
Whether or not refinancing is beneficial is mainly up to you. If you are refinancing because you want to lower your rate but you only have 20 years left on your loan, will a new 30 year loan be the right program? It might be. If you want a lower monthly payment than it probably is right but if you want to lower the total amount of interest paid on the loan, it may not be. You have added 10 more years worth of mortgage payments on your home. Is the monthly savings worth the extra 10 years worth of interest? Only you can be the judge. You know your budget better than anyone else and if you don't have a budget, then it is definitely time to get with your mortgage professional and create one. You won't be sorry you did.
Normally, our customers refinance to get a lower interest rate or to lower their monthly payments, it really depends on your individual goals. If you would like to reduce the amount you are paying in interest, you may want to consider a loan with a reduced term. If you would like a smaller payment, you may want to consider a longer term, an adjustable rate interest or an interest only loan however you may pay more interest over the life of your loan.
Also, other good reason to refinance is for investment purposes. Consult with your financial planner or accountant to find alternative investment opportunities. You might find a high return on investment might be better suited for you rather than having your home equity accrue with no interest opportunity.
If you have an adjustable rate mortgage that is set to adjust soon, now may be the time to start shopping for your next mortgage. The process generally takes 20 - 30 days but the extra time can be spent removing credit report errors, gathering all documentation, and deciding on what loan program is best for you.
One obvious reason to refinance is when the fixed rate period of any type of adjustable rate mortgage (ARM) loan has come to an end. For example the fifth year of a 5 year ARM and the third year of a 3 year ARM.
There are so many programs out there today then there used to be that can give the home owner the edge in creating a financial plan for their future. Whether its home improvement, debt consolidation, or lowering the monthly payments for cash flow, or getting equity cash out for other important financial decisions (education, investments, business, medical, etc), a mortgage broker professional can assist you in reviewing these options and what will work best for you.
Sometimes life may throw you a curve ball such as a medical emergency or a major repair on your property. Even if you are not reducing your rate refinancing may be the best and only solution to solve these problems and avoid either troubled credit or further damage to your residence.
If you are considering a second refinancing, don't overlook this potential tax write-off: When you pay points to refinance, you must deduct the amount over the life of the loan, usually 30 years. But when you refinance a second time, all of the points that have not yet been deducted from the first refinancing can be written off in a lump sum.
Unlimited Cash-out Refinances - Unlimited cash out means there is no limit on the amount of money available. They can come in the form of HELOCs or 1st mortgages or a combination of both.
An unlimited Cash-Out refinance would be used if you were looking to purchase a second home or investment property. Because these type of purchases require a higher down payment than owner-occupied purchase, a cash out refinance is most likely a reasonable option.
Before any refinance always be sure that it will benefit your situation and help you achieve your goals.
The benefits are extra cash on hand and that the interest is tax-deductible, the cash-out portion of the refinance is deductible, where credit card debt is not. The disadvantages are that the cash comes directly from your equity, and if your financed amount exceeds 80% loan to value you may pay PMI.
Many people will refinance with a cash-out refinance to simply invest the money and have a larger tax deduction at income tax time. This way there is a good chance that you can make roughly 10+ percent off of the money being taken out of the equity in your home from your cash out refinance, and you are paying a considerably lower interest rate on your mortgage than what you are making from your investment. In addition, you get a bigger mortgage interest tax deduction when preparing your income taxes each year. This is a very common investing strategy with interest rates still being so low.
If you have a large amount of high interest credit card debt, then it may be beneficial to you to refinance it into your mortgage. The interest on your mortgage is tax deductible, where as the interest on your credit card is not. The tax advantages alone would be worth the refinance, let alone the monthly saving from your credit card debt.
Whenever possible, cash taken out of your home equity should be spent improving the value of your home. Adding a deck, pool, or additional bedroom will help preserve the value of your home and keep you from getting " under water " or owing more on your home than it is worth.
Cash Out Refinance - Cash-out refinance option for those homeowners who have built equity in their property thru market appreciation. A Cash-Out Refinance lets you take advantage of the equity over the years you have built up and receive Tax Free Cash to use as you see fit. Some example of use of cash out proceeds are:
Buy a New Car or Recreational Vehicle
Buy a vacation home
Consolidate Credit Cards
College Tuition
Home Improvements
IRS Income Taxes
Divorce Settlements
Pay off high interest loans
Past Due Taxes
Start Up Businesses
Cash-Out Refinance mortgages, like home loans for property purchases, come in many documentation types, including Full-Doc, Stated-Income, Limited Doc, and No Doc. In most cases, the more credit documentation a homeowner can provide, the higher Loan-to-Value he can acquire. In other words, given the same property value, a homeowner doing a Full-Doc Cash-Out Refinance can most likely get a bigger loan than a homeowner doing a No-Documentation loan.
You should consult your loan officer to see if a cash-out refinance on your first mortgage is your best option or if maybe you should consider obtaining a second mortgage or a home equity line of credit instead. Sometimes the cost of doing a cash out refinance on your first mortgage is not as beneficial as simply obtaining a home equity line or a second mortgage. Therefore, contact your mortgage professional by phone at 888-275-6788 or by emailing your mortgage professional at info@bestnodocloans.com to see what all of your options are and which one will/should be best for you.
If you choose to use a home equity loan or line of credit to consolidate debt you will not only have the convenience of one monthly payment, the interest paid can typically be used as a write off on your taxes.
People who are in TX should remember that your primary residency house cash out is limited at 80% of your house value. It is the state regulation that the TX property owners have to keep at least 20% of the equity.
Taking cash out of your current mortgage is also a god way to start investing in real estate. The amount of cash out can be used for a down payment on an investment property, which in the long run can make you even more money. If you are considering investing in real estate you should start by talking to your local mortgage professional at 888-275-6788.
Many people invest the cash taken out of their equity to improve the value of their home. Adding an additional room, deck, or pool will provide enjoyment as well as help to increase the value of your home.
One of the major advantages of consolidating debts by the cash-out refinancing is that the interest paid on your mortgage becomes tax deductible. For example, if you used the cash-out money to pay off your automobile loan payment, you have just converted the non-tax deductible interest (automobile loan interest) into tax deductible interest (mortgage interest payment).
If you have a project that needs funds you can use your home as a way to get that money! Loan costs are minimal and depending on what your project is, you might lose money by not pulling the cash out now! Imagine where rates will be if you decide to put it off for 2 years.
The best way to find out what your cash out options are is to take 10 minutes and speak with a mortgage professional. You can call me at any time.
Mortgage Refinance Costs - When you refinance your mortgage, you usually pay off your original mortgage and sign a new loan. With a new loan, you again pay most of the same costs you paid to get your original mortgage. These can include settlement costs, discount points, and other fees. You also may be charged a penalty for paying off your original loan early, although some states prohibit this. The total expense for refinancing a mortgage depends on the interest rate, number of points, and other costs required to obtain a loan.
This will all depend on what state you are in, but closing cost fees will usually be different for every lender some incur other fees that the other wouldn't. It is best to discuss these with your loan officer.
All costs associated with your refinance will be reflected on your good faith estimate (GFE). The GFE will itemize each of the costs associated with the loan, and can be subject to change if the terms of the loan change. When comparing loan programs and interest rates between companies, always be sure to get a copy of the GFE. This way you will be able to see the overall costs of the refinance between the companies.
Your mortgage professional should consider the new costs involved in your refinance to determine if refinancing is in your best interest. The refinance should make obvious sense. If you are only going to save a small amount of money each month, you will probably be spending a lot more money on the new loan than you will be saving.
The type of loan program you choose and the lender you go with can affect your refinance closing costs. You may choose a zero closing cost loan or choose to roll your closing costs into the loan amount. Ultimately, one should decide if the payment and the loan program works for them. In most cases, closing costs can be written off on your current year tax returns (consult your local CPA or tax preparer for more details).
When you refinance your home loan their will generally be title charges associated with your refinance. These charges will be associated with the title company handling your mortgage transaction. Some of the title fees may or can be: settlement fee, title insurance, title binder, closing fee, overnight delivery fee, wire fee, notary fee, and a package handling fee. There are other title fees that can be associated with your refinance also and these fees can be charged by different title companies in different variations. One title company may charge a closing and settlement fee and another may only charge a closing fee. This is why it is a good reason to look over your good faith estimate to make sure the title charges seem reasonable. Question anything you are unsure of and what it is for.
Refinancing can sometimes be accomplished without closing costs. The interest rate will be higher but, depending upon how long you plan to keep the loan, it may work out to your advantage. Ask your mortgage professional to discuss both alternatives with you and lay out the advantages and disadvantages of each approach for your specific situation.
Did you forget to pay your property taxes? If no, most title insurers will require it be paid current as a condition of obtaining title insurance. This may mean less cash out or more cash required at closing. If your taxes were paid recently be sure to keep a copy of the receipt as the update may not yet be apparent to the title company.
Be sure that you compare the final closing fees with your original GFE. If the closing costs vary by a wide margin you have three days to cancel the transaction.
How to avoid costly refinance mistakes - So why do you want to refinance your mortgage? Are you trying to save money with a lower monthly payment? Are you trying to lower your interest rate? Do you want to refinance with a cash-out equity loan?
If you’re simply trying to find a lower interest rate, make sure you examine the related fees and closing costs. If you can save enough money to cover these costs, refinancing may be right for you. We will provide you with a Good Faith Estimate so you can analyze these costs.
It will be important to understand if your current mortgage carries a "prepayment penalty" fee. If the payoff comes with this fee associated your estimated costs, fees and or cash out will be dramatically affected by this additional cost.
We will do a complete financial analysis to see if combining some of your credit debt to your refinance will be cost effective. We will compare interest rates on your current debt as well as monthly cash flow advantages.
If you are quoted a loan with settlement charges that you feel to be extremely high, make sure you contact another mortgage professional to get another quote to compare the first one to. Too many people do not shop around enough or even at all to make sure they are getting a fair deal. When comparing the quotes make sure you look over the entire quote as a whole and not just at the settlement charges. Compare the rates, compare the closing costs, compare the loan programs that they have worked up for you, etc... Company A may have higher settlement charges but a rate that is better by a full percent and Company B's closing costs may be a little lower but his rate is higher and on a worse loan program than Company A. If the quotes are close it is usually best to go with the company that you feel most comfortable with and that you feel is the most upfront.
When comparing loans between several companies, be sure that you are being quoted on the same loan program. Different mortgage loans can have different closing costs associated with them. Also, ask each company for a copy of the Truth-In-Lending (TIL). The TIL will break down the total cost to close your loan, reflected as the APR. The TIL will also show if there are any prepayment penalties with the new loan.
Getting Cash Out from a Refinance - Most loan programs allow borrowers to obtain cash out from their refinance transactions as long as they have sufficient equity in the property. In a Fannie Mae conforming loan there is a slight increase in the rate when a borrower is borrowing more than 70 percent of the value of their property and is taking cash out.
Using cash out of the equity in your home through refinancing or by obtaining a second mortgage or a home equity line of credit has advantages and disadvantages. The main disadvantage is that you are using up the equity in your home. Your home is like a big savings account and every time you take money out of the equity in your home you are making withdrawals on this savings account. However, this money can be used to pay off higher rate debts, give you peace of mind, provide more money monthly to invest, for home improvements to increase your home's value and many other things. Many times the interest on the full amount of your mortgage loan can be tax deductible also.
It is important to know that although the equity in your home is yours, you can't truly pull it out as if it were a savings account unless you sell your home. If you do cash out the equity in your home through a refinance, you are really just taking out a loan against the equity in your home. It's kind of like having a secured credit card, where you pay interest on the balance of the card, even though the bank has enough of your money to cover the amount on the card anyway.
Don't forget that there is a 3 day rescission period for any refinance. So if you know that you will be needing the money from the transaction by a certain date, then it would be in your best interest to apply as soon as possible. This will allow you to have your money in time, in case there are any problems during the process.
When you speak with your mortgage professional be sure to tell them how you intend to use the cash you take out, and what your future needs may be. For example if the money you need to access to is a one time expense such as consolidating debt or new siding a home equity loan may work best for you. However if you are planning to use the equity in you home to build a new deck this year, replace siding the following year, and pay for your child's college education in 2 years, then a home equity line of credit may be the best for you. Knowing your needs allows your mortgage consultant to help you make a well informed decision on what program will work best for you and your family.
Lenders consider all loans that either take cash out of closing or pay off debt to be cash-out refinances. Usually a refinance in which you get the lesser of 2% or $2000 will be considered a rate term refinance.
Lenders will not allow you to take as much cash out when you refinance an investment property as when you refinance your primary residence. Investment properties are considered higher risk loans, so lenders want you to have more of your own money tied up in those loans.
Getting a cash-out refinance is a great way to help pay off high interest credit cards. It will help reduce your monthly expenses, and the interest will be tax deductible once it is part of your mortgage.
Once you borrower over 80% of the value of your home you will have to pay PMI (private mortgage insurance) and you will most likely see a slight rate increase the higher the LTV (Loan to value) that you go with a cash out refinance. Sometimes when doing a cash out refinance it may be better to either do it as a first and second mortgage or to just obtain a 2nd mortgage or a HELOC (Home Equity Line of Credit). This way you can avoid any rate bumps to your first loan and avoid PMI. A licensed mortgage advisor can assist you to find what will work best for you and your individual situation.
Be careful not to squander your home equity. Sadly, in many cases a family will take cash out of their home equity to pay off high interest rate credit card debt but only a few months later have the credit cards charged up again. In this instance you have traded unsecured credit card debt into a secured debt the lender can and will repossess: your home!
Your mortgage broker can do a financial analysis of your monthly payments and normally save you hundreds of dollars monthly by paying off high rate cards and/or consolidating other debts you may have.
Cash-Out Refinance - With a Cashout-Refinance the money you get at closing can be used for many purposes such as future investments, College, or debt consolidation. Money can be used to pay off current monthly debt which could lower your personal Debt to Income ratio. Consult a Mortgage Professional in regards to how much you should extract from the equity built into your home.
While some lenders limit the amount of cash equity out of the home refinance to $100,000-250,000, there are some specialty lenders who service their own loans that will give unlimited cash-out. In these "unlimited cash-out" cases the lender will allow the balance of the new loan to go up to certain loan-to-value (LTV) caps, which is a ratio of the value of the home to the amount mortgaged.
Other types of cash-out restrictions will often curtail the time from when a person buys a home to the time they refinance for cash-out using a new appraised value. This is called "seasoning" in the mortgage industry. The title of the home must season for at least 12 months in conforming lending cases before they will allow equity to refinance out using a new appraised value. Where the borrower does not seek to use a new appraised value, but would like to tap into equity that was created upon purchasing the home, the seasoning issue may not apply. This would occur when the borrower puts money down on the home at purchase, and now would like to withdrawal that equity again by cash-out refinance.
You can get cash out through a first mortgage, a second mortgage or a home equity line of credit (heloc). Some lenders will require that you stay within certain loan to value (ltv guidelines) for cash out. Conforming limits are 90% LTV and FHA cash out is limited to 85% LTV. Many subprime lenders will go to 100% cash out with good credit.
Whenever you take a decent amount of cash out from your home, your LTV (loan to value ratio) will probably exceed 80%. To avoid paying mortgage insurance on these loans, many borrowers split the amount borrowed into two loans, a first and a second. Typically, the first mortgage has a LTV of 80%, but there are loan programs where having the first mortgage at 70% LTV offers more favorable terms to the borrower. The lower the LTV ratio, the less risk the lender will have in offering you a loan.
FHA update on October 31, 2005 allowing for a cashout refinance to go as high as 95% LTV. Previously the guidelines only allowed for a maximum of 85% LTV. These changes will allow many borrowers to take advantage of the equity in there homes and still obtain low rate financing.
Taking cash out on a home refinance is one of the many factors a lender takes into account when evaluating the risk of the loan.
In certain situations, taking cash out may cause the lender to perceive the loan to be of higher risk. This could result in a slightly higher interest rate or additional restrictions on qualifying for the loan.
Since payment on cash out refinances can be spread across over up to 40 years, it is often advisable to use the proceeds for investing in something enduring. Using cash out from home equity for Value adding home improvements or for financing a new business are excellent options whose benefits you will continue to reap long after the last payment is made.
If you refinance your mortgage at a higher amount which is more than your current loan balance and keep the difference in cash for your personal use or to pay off existing expenses, that is considered a "cash out refinance."
Besides setting the maximum LTV limit with Cash-Out Refinances, some prime lenders also limit the maximum cash-out dollar amounts.
Remember that when you are doing a cash-out refinance, that there is still a 3 day rescission period after the loan closes. You will not be able to get your cash until the loan has funded after the 3 days. If you know that you are going to need your money by a certain date, then it would be in your best interest to tell your mortgage professional when the money is needed by. The mortgage professional may be able to put a rush on your loan, or schedule the closing in time for you to get your money.
Some non-conforming lenders will allow cash-out up to 125% of the value of your home.
Cashout Refinances can help many people better their financial situations by improving their monthly cashflow. However, many of these borrowers after paying off high interest rate debts often find themselves in the same situation down the road because of a failure to control their use of credit. These people wind up being in a worse situation because now they have no equity in their home plus high interest rate debts to pay.
If you're looking to take out unlimited cash out when refinancing consider a rate and term refinance of your first mortgage and a home equity loan second mortgage option. Taking cash out proceeds from your second mortgage allows you to get a better rate on your first mortgage.
Many times a cash out refinance of your first mortgage will contain a slight bump to the interest rate. By keeping the amount of cash out under the lenders LTV guidelines for a cash out refinance you can avoid this small rate increase or by taking out a 2nd mortgage or home equity line of credit for the cash needed you can avoid this slight rate bump.
Mortgage Refinance - A mortgage refinance is done by applying and qualifying for a new mortgage loan and then using the proceeds from the new home loan to pay off the old home mortgage loan. You can refinance for many reasons: to take cash out of the equity in your home, to lower your interest rate, to lower your mortgage payment, to simply switch mortgage companies because you are not pleased with your current mortgage company, to consolidate debt, to pay off high rate credit cards, to lower the term of your mortgage, to increase the term of your mortgage, to combine a first and a second mortgage, to switch from a fixed rate to an adjustable rate, or to switch from an adjustable rate to a fixed rate, and for many, many other reasons. Consult with your mortgage professional or mortgage broker to find out what your best options are.
When refinancing in order to payoff credit card debt, keep in mind that credit cards are unsecured debts.
When you refinance, you are transferring unsecured debt into debt secured by your home. Make sure you are financially savvy enough not to continue the patterns that resulted in the credit card debt or your could be putting your home at risk.
One of the most popular reasons for doing a mortgage refinance would be to obtain funds for improvements on the home. Since the money spent on such improvements often directly increases the value of the home, it is a very sensible way to obtain such funds. Some of the most popular improvements include new kitchens and bathrooms, new windows, landscaping and swimming pools.
Why should I refinance? - Many homeowners are using the appreciation in there homes to get rid of high rate credit cards by consolidating. When you consolidate your loans you often reduce the amount of money your spending each month.
One of the main benefits to refinancing is to consolidate consumer debt. Consumer debt (i.e. Credit Cards & Auto Payment) is typically at a higher interest rate and is never tax deductible. Interest paid on debt tied to your home is deducted from your income at the end of the year often substantially reducing your tax liability. This tax favorable status is one of the many benefits of refinancing.
Refinancing your home can save you hundreds per month when you consolidate debt.
What if you want to add on, remodel or update the kitchen? You may not have the cash to do so, but the cost of improvements may be more than covered by the increase in value of the home. This is a great use for a home equity line of credit or a cash-out refinance.
Many people refinance to change from a variable rate to a fixed one or vice versa.
Refinancing a high interest rate after a 24 month good payment history could save you a lot of money on your monthly payment.
If planning to purchase investment property, refinancing your primary residence is a great way to raise the cash for the down payment required.
Always consider your long term benefits of doing a refinance. The interest rate is not the most important aspect of the transaction. Even if your current rate is lower, you will probably save more money over time with a debt consolidation refinance then you would be with maintaining the situation you are currently in. Ask yourself a few questions:
How long have I had this balance on my cards?
At the rate I am paying my credit card debt down, how long will it actually take to pay them completely off?
What will be my total cost once I have paid off all my credit card debt?
You can refinance to switch to an interest only loan to maximize cashflow or to switch to a Pay Option ARM to provide yourself with a lot of flexibility in your monthly mortgage payment. Some people also refinance simply to get a way from their current mortgage lender because they are not pleased with them.
Another main benefit of refinancing is to get out of PMI (Private Mortgage Insurance). In most cases if your Loan-To-Value was above 80% when you moved into the home then you most likely got stuck paying PMI. Your home may have appreciated quite substantially over the past year or two and with a new lender they will take new appraised value thus eliminating PMI.
Most people refinance to because of changes in their financial situations. Some, after determining that they can afford a bigger mortgage payment, refinance to a shorter loan term to save on the total amount of interest charges. Others, after experiencing a decrease in income, may refinance to a longer term loan to take advantage of the lower monthly payments. Yet others refinance to withdraw from the equity built in their homes for other financial purposes.
Using equity in your home to pay off high rate loans (credit cards, auto loans, etc.) may have certain tax benefits also. Consult your CPA for more information.
Many homeowners refinance to pull out cash to purchase another property.
To reduce the term or length of your loan, doing so can save you thousands of dollars in interest.
No Cash-Out Refinance - A No Cash-Out Refinance is a transaction in which the new mortgage amount is limited to the sum of the remaining balance of all existing mortgages, closing costs (including prepaid items), and any discount points.
Many people will do a no cash out refinance to simply lower their term from 30 years to 25 or from 20 years to 20 years, etc... By lowering your term you will save a substantial amount of mortgage interest. Cash out refinances can also be done for the opposite reason: A borrower may be on a 15 year mortgage and something happens at work or an unexpected expense comes up and it may be necessary to increase your term back up to a 30 year mortgage instead of the 15 so that you can free up some money each month.
You are only allowed to receive $2,000 or 2%, whichever is the lesser, of your loan amount back in a rate and term refinance, also known as a no-cash out refinance. No cash out refinances are done for many reasons. One reason is to lower the rate and or term of your loan. Lowering your rate can save you money from your monthly mortgage payment and lowering your term can cut the time it takes you to pay off your mortgage saving you tens of thousands (possibly hundreds of thousands) of dollars of mortgage interest.
You are allowed to receive a maximum amount of $2000 during a No Cash-Out Refinance.
An experienced mortgage broker often submits Rate and Term Refinance applications to the banks that currently hold the mortgage notes, because there is a good chance the homeowners qualify for "Streamline Refinance" programs, which offer reduced documentation and less settlement costs to the homeowners.
No Cash Out means different things to different lenders. If you are looking for a mortgage that is non conventional then the rule of thumb is 1%. That means you cannot have more then 1% cash in hand for a non cash out refinance.
Another reason to do a no cash out refinance is because you currently have a 3,5,7 year fixed-adjustable rate mortgage and it is about to expire and start adjusting every 6-12 months, or you would like to get off the adjustable rate mortgage all-together and into a fixed rate mortgage before the market climbs into the 7% range.
Refinance - The term refinance is commonly used when referring to the paying off of your existing mortgage(s), or home loan(s), with the proceeds, or funds, from a new home loan. There are many different reasons why people refinance. Most people refinance to try and put themselves into a better financial situation.
Some people refinance so that they can cash out some of their equity and use it to pay for something such as a new car or vacation. This is generally regarded as a bad idea. You will pay several thousand dollars for the new loan, and then you will pay interest on a larger loan amount. In the end it usually isn't worth it to take out a loan to pay for pleasure items. The long term costs outweigh the short term benefits, and you will likely end up regretting the decision.
Most homeowners refinance for one of three reasons, to pay off the lien on the house sooner, to have a lower monthly mortgage payment, or to withdraw funds from the equity built in the house. A homeowner can pay off the home sooner by refinancing a 30 year mortgage with a 15 year mortgage. On the other hand, a person may refinance a 15 year mortgage with a longer term loan to achieve lower monthly payments. For those homeowners who do not wish to sell their homes, they can get to the equity built up in the house by doing a Cash Out Refinance.
Debt Consolidation is another common reason to refinance. Using the equity in your home, to pay off other debts that will have a higher interest rate, is usually the reason for a debt consolidation refinance. Your Broker or Banker can explain the benefits, of this type of home refinance.
The cash taken out of your home equity should be spent improving the value of your home. Adding a pool, deck, or guest house may help preserve your equity by adding value. If you spend your equity frivolously you could end up in a bad situation.
Refinancing is not always the best answer for homeowners. When thinking about refinancing, make sure that the benefits out way the costs of the transaction. If you are refinancing into a lower rate, but plan on moving in a year, then the refinance may not benefit you as much as you think. Always consult with a mortgage professional when considering to refinance.
How do I refinance - The first step to refinancing is to write a list of what your needs really are. Are you in need of cash, lowering your payments, or want to buy a car etc.
Most likely you will need to have an appraisal done in order to refinance your home, especially if you are trying to do a cash-out refinance. The appraisal will give the lender and underwriter an estimate as to the value of your home and help to determine how much the lender will allow you to borrow. The appraisal is only an estimate by the appraiser as to the approximate value of your home. It by no way means your home can or will sell for the appraised value. You may be able to sell your home for a much higher or lower value than what the appraised value comes in at. Usually, the lender or mortgage broker will order an appraisal after you have been pre-approved. The appraisal may be just a drive by appraisal or it may be a full interior inspection appraisal. It is very important during the refinance process to try and set the appraisal appointment up with the appraiser as soon as possible to make sure your rate lock does not expire.
It is wise to start with your current lender as a benchmark and then get some quotes from mortgage brokers and compare.
Next you will want to contact a reputable mortgage broker who can listen to your needs and present you with different mortgage programs that will fit your plans and help you achieve your goals..
Once you have determined the purpose of your refinance, for lower payments or cash out the equity in your home, contact a loan officer to see your options and get a free quote. There are too many loan programs available for you to go it alone. The average homeowners are not familiar with the options available to them. A mortgage broker can often help to achieve their refinance purposes.
There are two types of refinances - rate and term, and cash-out.
Don't focus strictly on your rate or strictly on your closing costs. You need to obtain the best combination of the two. Ensure you receive a low rate and pay reasonable closing costs.
Should I use my current broker to refinance - If your mortgage broker did a good job with your first mortgage loan there are many reasons to do business with him/her again. You may be able to secure a slightly lower rate on your refinance. You also have the advantage of the broker having all your information on file already reducing the amount of questions you have to answer on the application.
Even if you did like your previous mortgage professional, it is always a good idea to get a couple of quotes from different companies. If the previous mortgage broker is way out of the ball park, they may be able to restructure the loan to get you into a better situation.
Anytime you find a mortgage broker that you are completely satisfied with and feel you can trust you should stick with them for all of your future mortgage transactions. By sticking with someone who is familiar with your personal situation this can help them provide excellent advice, become more acclimated and familiar with your finances and goals, and find the right home loan program for you. Also, many brokers will offer discounted rates or fees when you go through them again for your home financing needs.
Many mortgage brokers make their entire living from referrals and some may choose to reward their best clients. If you have used the same broker several times, or if you have referred lots of friends and family to your mortgage broker, you could ask for a customer loyalty rebate.
If your mortgage broker served you well before, then they will serve you well again.
Refinance to Lower Your Monthly Expenses - When most people think of refinancing they are thinking in terms of lowering their rate of interest or their monthly payments. Even as interest rates are rising, refinancing often makes sense for many American households. Even if you have to slightly raise the rate of interest that you are paying, if you can refinance to pay off other high interest debt you will likely see a huge improvement in your monthly cash flow. It is often more beneficial to lower your overall monthly expenses, not just your mortgage payment.
Remember that the interest you pay on your mortgage is tax deductible, where as the interest on your credit cards are not. That is why a slightly higher mortgage interest rate, is not as bad as most consumers may think.
You can lower your monthly expenses by refinancing into an interest only loan. This will help you to save a good amount of money from your monthly mortgage payment alone. If you were to consolidate debt in your refinance and switch to an interest only loan this would save you a lot of money per month and truly maximize your monthly cash flow.
When analyzing the benefits of a refinance you should look at both the short term and long term financial benefits. You should consider the length of time you plan on staying in your current property, how much you will save over time, and how much you will save monthly. A good way to figure how beneficial a refinance can be if you are paying off debt is to figure how long and at what cost it will take to pay off you current debts at the payment levels you are currently making.
Revolving debt interest rates are generally much higher than mortgage rates. In today's market many credit card companies are raising the minimum payments considerably. This causes hardship in many households. Often times refinancing and paying this type of debt off through the loan can be very beneficial.
Make sure you are certain that the end result will benefit you financially. Instead of refinancing your whole mortgage you may want to take out a second mortgage or HELOC to reduce debt payment amounts.
Be careful not to squander your home equity. Sadly, in many cases a family will take cash out of their home equity to pay off high interest rate credit card debt but only a few months later have the credit cards charged up again. In this instance you have traded unsecured credit card debt into a secured debt the lender can and will repossess: your home!
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