How to Take the Headache Out of Cash-In Refinancing

How to Take the Headache Out of Cash-In Refinancing-150x150You have probably heard of cash-out refinancing, which allows the borrower to leave the closing with a little extra money. This type of refinancing was very popular a few years ago, before the housing market crashed. The United States Housing market is currently still recovering, so cash-out refinancing is not so popular anymore.

A type of refinancing that is pretty much the opposite of cash-out refinancing is cash-in refinancing. With a cash-in refinancing, the borrower makes cash payment when refinancing, instead of receiving a cash payment. This type of refinancing is used by more and more borrowers because it helps them meet the lender’s requirements. The borrower makes a payment towards his or her mortgage balance, and then takes out a new loan for a much smaller amount. Most people who choose to do a cash-in refinance have money sitting in savings accounts that yield low returns, and would like to put that money to better use.

Is Cash-In Refinancing a Good Idea?

Paying off your mortgage easier or earlier is a great feeling, but you might be asking yourself if that money would be put to better use if you invested it in something else. You could be investing the thousands of dollars that you are using in a cash-in refinance elsewhere, but this type of refinance can also be considered a good investment. Reducing your mortgage debt will get you a lower interest rate, which would bring you some large savings and possibly be more than the return that some investments would generate.

Cash-in refinancing is a great opportunity for home owners whose homes have declined in value. If the home is appraised for a low amount, the equity in it might not be enough to meet the lender’s minimum lending requirements, so making a large payment will certainly help you qualify for a refinance much easier. Making that payment required in a cash-in refinancing will also help you avoid having to pay for Private Mortgage Insurance.

You might want to reduce your mortgage term, from 30 years to 15 years for example, but you wouldn’t be able to afford the much larger monthly payment. By doing a cash-in refinance, you lower the mortgage balance, making it much easier for you to reduce the term of your mortgage loan and afford the new monthly payment.

Of course, like with any type of refinancing, there will be a couple of years or more until the amount of money that you used to pay the closing costs with will be recovered by the savings from refinancing (Read: Refinance Loan Types and Closing Costs).

Another downside is that you have to come up with a large amount of money for the required cash payment, which may cause you some trouble if you are taking it from a 401k, for example. Taking money from a 401k will attract some penalties, such as recovery or repayment costs. Obtaining the money by selling stocks could result in having to pay a capital gains tax.

The thought of saving thousands of dollars by doing a cash-in refinancing is very appealing, but, like with any type of refinancing, you must consider all the risks as well. Your financial situation and future plans should be the most important factors affecting the decision to refinance. If you come to the conclusion that doing a cash-in refinance will save you money and make your life easier, then you shouldn’t encounter any problems as long as you have done your homework and understand what it involves.

Watch Out! Protect Yourself from Homeowner Scams

Watch Out-Protect Yourself from Homeowner Scams- 150x150Whether you are a home seller, a home buyer, or a home owner, there is always a chance that someone will try to take advantage and scam you. Homeowner scams have been around for a while, but depending on the state of the housing market, new and improved scams are developed. Sometimes, even those who have taken all the necessary precautions to protect themselves can be preyed upon by scammers.

Most scams are designed to prey upon those who try to refinance existing mortgages, but there are plenty of scams designed for home buyers and sellers, as well. There are several laws, such as the Fair Housing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Truth-in-Lending Act and many others that have been created to help home buyers, sellers and owners, but some lenders find ways to circumvent them. Organizations like the Federal Trade Commission are responsible with implementing these laws, but consumers should also be aware of the dangers that are out there and find out how to better protect themselves. Here is a list of the most common homeowner scams that you should protect yourself from.

1. Bait and switch. This scam is used in many industries, especially in retail stores, but it has also found its way into the lending industry. Lenders who use the bait and switch usually advertise a low interest rate through several means, such as newspaper advertisements or billboards, but don’t actually offer that deal to anyone. When the borrower inquires about the low rate, he or she is told that it is not available anymore, but a slightly higher rate can still be obtained.

2. Bait and remember. Mortgage loans have pretty high closing costs. These costs should be taken into consideration when applying for a mortgage loan and your lender should inform you of them. But some lenders pretend that they forgot to inform you until you are too far into the process to back out. This can be a very expensive problem for you, as some of the closing fees are as high as several thousands of dollars.

3. Loan steering. Some lenders may deny your application for an advantageous loan which features great terms, such as a low interest rate and low closing costs, even though you are perfectly qualified for that mortgage. In order to make more money, they will steer you towards a more expensive loan, giving you reasons for being denied on the better loan such as having a low credit score or problems with your income.

4. Adjustable-rate mortgages. Adjustable-rate mortgage loans are perfectly legal, but the lenders are required to inform the borrower of how much the loan interest rate can fluctuate in the future. Some lenders offer great deals on adjustable-rate mortgages initially, but with very high interest rates in the future.

5. Negative-amortization loans. This type of loan is illegal in most areas of the United States, but some lenders still get away with offering it to their customers. A negative-amortization loan requires you to pay a smaller interest than what it is owed, with the difference being added to the principal balance of the loan. This leads to a principal balance that increases over time instead of decreasing.

6. Cash-out refinancing. Cash-out refinancing is legitimate and is a viable option in certain situations, but some lenders use it in order to get borrowers to use it for paying off smaller debt. This seems like a good choice for borrowers because their monthly payments for credit card and other debt decreases, but the overall cost will be much greater than their initial debt.

7. Equity stripping. An owner who is struggling financially is convinced to transfer the title to his or her home in order to qualify for a different loan, after which the owner loses ownership of the home. Also, when this happens there is a big chance that the owner will still owe money on the home that he or she lost.

When it comes to homeowner scams, prevention is the most important. Sometimes, home owners find out they have been fooled a little too late, and it may be too late to turn back. While some scams are a hundred percent illegal, and there’s little you can do about them if you have been targeted, some can be avoided by simply documenting yourself and reading the fine print.

See How Easily You Can Refinance Your Mortgage the Second Time Around

See How Easily You Can Refinance Your Mortgage the Second Time Around-150x150Refinancing can save you lots of money, especially right now with interest rates near record lows. But refinancing can quickly turn ugly if you don’t pay attention to every detail. Most times, refinancing your mortgage looks great at first glance, but you need to know when to refinance and how often.

Lately, interest rates have started to increase again, but rates were at record lows recently. Many home owners have taken advantage of the new interest rates and refinanced their mortgages. But some have been doing it again and again without seriously taking into account the negative aspects of refinancing multiple times.

Reasons for Refinancing a Second Time

Generally, home owners are advised to not refinance more often than every 3 years because the cost of refinancing is high and can quickly become a burden, making loans actually cost more than if they had stayed with the initial interest rates. The truth is that if you can refinance for a much lower interest rate and plan on living in the home for a long time, then refinancing should be considered, even if it hasn’t been 3 years since you last did it. Here are a few reasons why refinancing a second time is an attractive option.

  • First, and most important, the more you can lower your interest rate, the more sense it will make to refinance again. Lowering your interest rate by, for example, 1 percent will result in great savings, which will far exceed the refinancing cost. Interest rates are on the rise right now, but they are still low, so refinancing again might still make sense. Before refinancing a second time, you must make sure that what you save in interest costs will exceed the cost of the refinance; otherwise, you will be losing money.
  • Refinancing again can also help you remove a borrower from your mortgage. If, for example, you bought the home together with a friend or family member and one or both parties no longer wants to have their name on the mortgage, this can be rectified by refinancing. Most lenders will also require you to refinance if you want to remove your spouse from the mortgage after divorce.
  • Refinancing for a second time before the recommended 3 years also makes sense if your financial situation changes. For example, if your income decreases, you might not be able to pay your mortgage anymore because the monthly payments are too large, so refinancing into a mortgage with longer terms will lower your payments. Changes in your financial situation can also mean that your credit score has improved, which will help you qualify for a better interest rate.
  • A cash-out refinance can make sense, even if you just recently refinanced. This kind of refinance occurs when you take out a larger mortgage than the one you have now and receive the difference as cash. A cash-out refinance can provide money you might need for repairs, improvements, medical bills, or school tuition, but you need to understand that this will lower the equity in your home, so you will receive significantly less money if you decide to sell your home (Read: Is Cash-Out Refinancing a Good Idea?).

Refinancing your mortgage the second time around should not pose any difficulties, unless your credit score has gone down or you  are facing other financial issues. You must keep in mind before starting the process that refinancing is expensive. Many home owners are so blinded by the new lower interest rate that they forget to take the refinancing cost into account and end up actually paying more than they did for their initial loan.

Quick Tips on Mortgage Refinancing

Quick Tips on Mortgage Refinancing- 150x150Refinancing can be a great way of reducing your interest rates and monthly mortgage payments. With refinance rates on the rise but still near record lows, now may still be the most opportune time to refinance, as rates are predicted to continue to increase in the future. Unless you’re a few years from paying off your mortgage, by refinancing you can lower your monthly payments and free up cash that can be invested or used to remodel and repair your home.

Refinancing also has its negative sides, like being a fairly expensive process, but it is up to you to take a close look at your financial situation and decide if refinancing is worth the cost, and if it will, indeed, save you money over time. Here are a few quick tips for those who are considering refinancing their mortgage:

Quick Tips

  • Check your credit score. Before applying for refinancing, make sure that your credit score is in great shape. Refinancing takes a lot of work and time, and all this would be wasted if you get rejected because your credit score is not good enough.
  • Don’t rely on the advertised interest rates. Lenders will usually advertise their best interest rates in order to attract more customers. The truth is that the rate that you will get will probably not be the one that you have seen advertised. Your interest rate will depend on many factors, such as the size of the mortgage loan, mortgage points, if the rate is locked in and many others.
  • Know what you want. Carefully weigh in on all of your options before contacting a lender to refinance your mortgage loan. Knowing what type of a loan you want, like a 15-year or 30-year mortgage, can make it easier for the loan officer to find a better rate for you. Also, it’s recommended that you know how much you are willing to spend on points in order to get a lower interest rate.
  • Contact your current lender first. If you are a good borrower, pay your mortgage on time and have good credit, chances are that your lender will do anything in his power to keep you as a customer. Your lender may even offer to waive some of the refinancing costs, like appraisal and inspection fees.
  • Shop around for a refinance. Closing costs and interest rates vary from one lender to another, so it doesn’t hurt to shop around a little. You might actually be pleasantly surprised and find a lender that will give you a much better rate than the others or waive some of the closing fees, making refinancing cheaper than you thought it would be.
  • Try to avoid “no cost” refinancing. “No cost” doesn’t actually mean free. The closing costs are bundled into the mortgage, which means that you’ll be paying interest rate on that amount, making the closing costs more expensive than they would have been if you paid them beforehand.
  • Save money by avoiding tax and insurance escrow services. Having a little discipline and paying your property taxes and insurance on time will save you money over using an escrow service that charges for something that you can easily do yourself.
  • Make sure you don’t have a prepayment penalty on your mortgage. Chances are you will find refinancing options that save you money, but it may all be for nothing if you haven’t been paying attention to your current mortgage contract. A prepayment penalty can make refinancing turn from a money saver to something that will end up costing you more than your original mortgage.

Whether refinancing is a good idea or not is up to you, as it largely depends on many factors. Refinancing can be a good choice for some, helping them save some money on their mortgage. Between the closing costs and all of the requirements, refinancing can turn out to be a bad choice for others, which can result in wasted time and money. At the end of the day, it is up to you to evaluate your situation and budget, and decide if mortgage refinancing is your best choice.

Is Cash-Out Refinancing a Good Idea?

Is Cash Out Refinancing a Good Idea 150x150For most homeowners, the sluggish economy may not be gaining the necessary momentum quickly enough to make managing a budget any easier. Naturally, they are looking at their home as not just a roof over their heads, but as a source of much needed cash in the form of equity to tap into, to relieve all sorts of financial needs or opportunities that remain beyond reach. Many are looking at the possibility of accessing this cash resource by investigating the option of cash-out refinancing programs.

Utilizing Home Equity

This option allows a borrower to refinance existing mortgages to ‘cash out’ some or most of the equity value in the home. In essence, the principle is to refinance the home for more than its present value and pocketing the surplus cash at closing. While the funds can be used for almost any purpose, the best strategic move would be to use these funds for either home improvements or debt consolidation.

Check into the Most Favorable Loan Programs

Examine this brief example of how a cash-out refinancing program would work. If the present home has a market value of $120,000, and the current balance on the existing mortgage is $70,000, the procedure would allow a homeowner to refinance for $100,000, eliminate the existing loan obligation of $70,000, and retain a surplus of $30,000 in equity. The process is of course dependent on how much is owed on the original loan, what the prevailing market value of the home is, and the specific mortgage loan types a refinance lender is willing to offer. There are many refinancing plans available, with loan amounts ranging from 80% to 125% of the home’s present value.

The advantages to this plan are based on a homeowner owing less than the home is worth, combined with being able to refinance at a much lower interest rate than the existing loan, adding more savings to the budget. In addition, gaining access to home equity funds will allow debt consolidation and tax benefits by paying off obligations with non tax- deductible interest.

Top 10 Refinancing Tips

top 10 refinancing tips- 150x150Many homeowners refinance their mortgages before expiry of the term. This decision is typically done in response to changing economic conditions and/or financial situations as well as for the potential benefits. However, borrowers must do extensive research and pay close attention to detail when looking into refinancing; otherwise, it may end up costing you a lot more than you bargained for in the long run.

Reasons to Refinance

  • Lower Interest Rate. Your credit score may have increased over time, so you may want to take advantage of lower interest rate charges from lenders.
  • Changing Loan Program. Most mortgage lenders offer fixed rate mortgages (FRM) and adjustable rate mortgages (ARM). If you took out an adjustable rate mortgage but you’ve realized that you are paying more due to a hike in interest rates, then you may wish to change to a fixed rate mortgage. This will give you financial peace as you plan on fixed payments.
  • Improved Financial Situation. It may happen that your financial situation has improved over the years since you took out a mortgage. In this case, refinancing will help you pay your balance quickly and build your home equity fast.
  • Cash Requirements. Mortgage refinancing can help you access cash that will enable you to pay for a child’s college tuition, buy a new car or improve your home.

How to Streamline the Process

If you’ve decided that you are going to refinance your mortgage, you need to do your research and prepare documents for the process. The top 10 refinancing tips that could help you include:

  1. State your reasons for refinancing. Knowing the reason why you want to refinance your mortgage helps you narrow down lenders to who meets your needs easily.
  2. Review your credit score. The higher the credit score, the more the loan amount you qualify for at a relatively lower interest rate. This is based on the fact that your default risk is lower. Refinance mortgage lenders will compete for potential borrowers with high credit scores.
  3. Specify the loan amount, interest rate and monthly repayments. Make some estimates of the amount you need and the repayment parameters so that you can determine your capacity to repay. Use a mortgage calculator to find out whether you will be comfortable with a fixed rate mortgage (FRM) or an adjustable rate mortgage (ARM).
  4. Ask your current mortgager first. Since you have an established record with your current mortgagor, it is important to seek a refinancing deal with them first. Your current mortgagor may likely charge you lower processing fees and closing costs.
  5. Check with a variety of other lenders as well. Even though your current mortgagor may offer you exciting terms, there are other lenders who may offer you much better terms, like lower interest rates. Check your state’s banking division to ensure that the lender is legitimate. This will enable you avoid scams which may evade liability if something goes wrong.
  6. Be careful with mortgagors offering no closing costs. The aim of every mortgagor is to land a customer. It is therefore not uncommon for many mortgagors to say that they have no closing costs. However, a closer analysis indicates that such mortgagors are likely to charge you more in terms of upfront fees or rolled-in costs.
  7. Consider a rate-lock deal. Many borrowers get disillusioned just after a few years into their mortgage deal. In a bid to avoid more refinancing applications, inquire whether your mortgage refinancer will offer you a rate-lock deal and the length of time it will last. This deal indicates the lender’s commitment.
  8. Find out whether you are liable to prepayment penalties. Most firms have a penalty for early mortgage payments. Refinancing a loan also qualifies here. You need to know the penalty amount and compare many lenders so that you know who you will save the most with if you decide to pay your mortgage off early.
  9. Evaluate any changes in property market values. If there is a significant drop in the market values of property, then it may be difficult to refinance a mortgage because lenders fear losing. However, you may qualify if a substantial amount of your current mortgage has been paid.
  10. Evaluate the option of a cash-in mortgage refinance. In a cash-in mortgage refinance, homeowners swap big loans for smaller ones thus leaving cash on the table when the deal is closed. The cash obtained can be used to fulfill other financial obligations. It also helps you to pump your home equity to 20%.

Even though you feel that you’ve arrived at your mortgage lender choice after a few tips, it is important to consider all of the other potential lenders because they may be offering other comparatively significant financial benefits.