Refinancing is often used to lower your interest rate. If rates have dropped since you last financed your home, you may want to consider refinancing. Other common reasons to refinance include; paying off a balloon payment, converting an adjustable rate loan, to a fixed rate loan or to extract cash equity in your home (cash out). A few reasons for cashing out include; home improvement, an education fund, and consolidating debt.
Reduce Your Interest Rate
Cash Out Equity for Home Improvements
Lower Monthly Payments
To Refinance – The items needed will depend on the type of loan you currently have:
Current Appraisal and Analysis
Verification of Assets and Income
Cash Out Refinance
Cashing out refers to the refinancing of a loan where the borrowers will borrow money from their own home. For example, If a home is appraised at $100,000 and the borrower’s outstanding mortgage loan is $60,000. It is possible to enter into an 80% cash-out refinance transaction for a loan of $80,000 (80% of $100,000). The new mortgage of $80,000 will pay off the $60,000 loan and leave $20,000 cash-out to the borrowers.
What are the benefits?
By cashing out on your home you can obtain cash depending on the value of your own home to pay off debts or upcoming expenses. The refinance transaction can also provide you with a better mortgage loan interest rate that will save you lots on your monthly mortgage payments during the loan. And it’s tax-deductible.
Reverse Mortgage Loans
Reverse Mortgage Loans are perfect for home buyers over the age of 62.
With a Reverse Mortgage, borrowers over the age of 62 can convert their home equity into cash and defer the payment until their death, or until they sell their home. Each month, the interest is added to the loan balance, which can eventually rise to exceed the value of the home. Typically, the borrower or the state, is not required to repay any additional loan balance in excess of the value of the home. Reverse Mortgages allow seniors to enjoy their golden years without having to worry about a mortgage payment.
Reverse Mortgage Loan Features & Benefits
Borrower must be at least 62 years of age
Property must be Primary Residence
No monthly mortgage payment. However borrower is responsible to pay property tax and insurance
Minimal income and credit requirements
You remain the owner of your home
Generally, it does not affect Social Security or Medicare benefits
Income from a reverse mortgage is not taxable
Money can be used for any purpose such as home repairs & maintenance, long-term care, medical needs or paying debt
Quick note on when to Refinance:
Deciding to Refinance
Traditionally, the decision on whether to refinance has meant balancing the savings of a lower monthly payment against the costs of refinancing. In recent years, companies have introduced “no cost” and low-cost refinancing packages that minimize or eliminate the out-of-pocket expenses of refinancing. (These refinancing packages compensate with a higher interest rate, or by including some of the costs in the amount that is financed).
With traditional refinancing, the most often cited rule of thumb is that the interest rate for your new mortgage must be about 2 percentage points below the rate of your current mortgage for refinancing to make sense. However, with the newer low and no cost refinancing programs, it can be worth your while to refinance to obtain a smaller reduction in interest rates.
How long you expect to stay in your home is also an important factor to consider. If you’ll be moving in a few years, the month to month savings may never add up to the costs that are involved in a refinancing.
When you’re making your decision, there are several things you should keep in mind:
First, if your current interest rate is significantly higher than today’s lowest rates, you may be able to roll your loan costs into the loan and still get a lower rate than you have today! Therefore, reducing your interest payments and saving money immediately.
Second, if you are planning to stay in your home for at least three to five years, it may make sense to pay “points” (a point equals 1% of the loan amount) and closing costs to get the lowest available rate.
And third, you can avoid laying out cash and still get a low rate by adding the points and closing costs to your new mortgage. Does that mean shouldering a lot of extra debt? Not necessarily. If you’ve had your current mortgage for at least three years, you’ve probably reduced your balance by several thousand dollars. So, you may be able to tack your closing costs onto your new loan and still end up with a mortgage that’s smaller than your original one — plus, of course, a lower rate and lower monthly payment.