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.

Top 10 Refinance Lenders for Borrowers with Bad Credit

Top 10 Refinance Lenders for Borrowers with Bad Credit-150x150Getting a mortgage loan with bad credit is difficult, but doable. Lenders typically regard people with bad credit as a high default risk, but they are willing to help every borrower as much as their lending requirements permit them. The same applies to refinancing, where borrowers might want to take out a new loan and possibly receive a better interest rate. Unfortunately, getting a smaller interest rate than your current mortgage loan is not very common if you have bad credit.

Refinancing is an expensive process and, even if you are able to get a loan with a lower interest rate, it might not be worth it, due to the higher overall cost of the new mortgage. Everyone’s financial situation is different, and you might very well be able to refinance with bad credit, get a lower interest rate and end up saving money. The only way in which you can find out if refinancing with bad credit is a good choice is by talking to several lenders about your situation, carefully look at what they’re offering, and decide if refinancing is to your advantage. Here is a list of the top refinance lenders for bad credit:

Top Refinance Lenders for Bad Credit Borrowers

  1. Wells Fargo. One of the largest financial services providers in the U.S., Wells Fargo, started its business in 1852. Since then, it has expanded in more than 35 countries, and currently has more than 270,000 team members. Wells Fargo specializes in mortgage, business banking, consumer and commercial finance, as well as wholesale banking.
  2.  JP Morgan Chase. The acquisitions and mergers of more than 1200 banking institution helped JP Morgan Chase become one of the largest banking institutions in the country and in the world. Some of the most important mergers were with J.P. Morgan, Chase Manhattan, First Chicago and Chemical. Chase serves millions of clients in the U.S., and offers services such as consumer banking, loans, private banking, asset management and mortgages.
  3. Flagstar Bank. Headquartered in Troy, MI, and founded in 1987, Flagstar Bank is one of the country’s top mortgage originators. They deliver award-winning services such as residential lending, retail banking and government banking.
  4. Fifth Third Bank. As of this year, Fifth Third Bank has assets of $318 billion, and is one of the largest banking institutions in the Midwest. Fifth Third Bank offers its customers four main services: consumer lending, branch banking, commercial banking and investment advising.
  5. SunTrust Bank. The Atlanta-based bank has more than 1,500 branches throughout the states of Georgia, Florida, South Carolina, North Carolina, Tennessee, Maryland, West Virginia, Virginia and the DC.  SunTrust Inc. and its subsidiaries offer a wide range of services to its retail and business clients, including banking, mortgage, asset management and securities brokerage.
  6. Nationwide Direct Mortgage. Nationwide Direct Mortgage was founded in 2009 and is one of the best-know online direct lenders in the country. This means that customers can borrow funds directly from Nationwide Direct Mortgage, without dealing with a broker or a third party agent. Nationwide Direct Mortgage provides customers an online mortgage application process, which can be tracked by applicants, who will obtain an approval or decision in less than a week.
  7. CapWest Mortgage. Founded in 1971, CapWest Mortgage is a division of Farmers Bank and Trust, a family owned bank since 1907. CapWest is approved by Freddie Mac and Fannie Mae, and is a Costco Preferred Lender. CapWest can originate loans in all 50 states, and also offers saving accounts, Certificates of Deposit and home equity lines of credit.
  8. Cole Taylor Bank. Named the sixth largest bank in Chicago by Crain’s Chicago Business, Cole Taylor Bank has assets of $5.8 billion, and can originate mortgages in 33 states. The bank was founded more than 80 years ago, and can offer a wide range of financial services, including residential mortgage lending and personal banking.
  9. First Financial Services, Inc. FFSI specializes in residential home financing and commercial lending. The company, known for their excellent rates, was founded in 1991 in North Carolina, and is also licensed in South Carolina, DC, Maryland, Virginia, Texas, Florida and Georgia.
  10. Amerisave Mortgage. Amerisave is one of the nation’s largest mortgage lenders, and offers clients all mortgage products, such as refinance loans, FHA, VA mortgages or reverse mortgages. Amerisave operates in all US states, and has more than 1,500 employees. The company guarantees an on-time closing, and they have excellent prices and offer great service.

Refinancing could be a great option for you and may save money for you in the long run, but it’s important to weigh in on the pros and cons before you make a decision to proceed. There is a high chance, especially for those borrowers with bad credit, for refinancing to cost more upfront then it will save you eventually, making it pointless for you to refinance. However, with this list of the top 10 lenders, you have the best chance of getting a better interest rate and saving money.

3 Quick Steps for Negotiating Mortgage Forbearance

3 Quick Steps for Negotiating Mortgage Forbearance- 150x150Money trouble can occur at any time and can make the repayment of a mortgage loan very difficult. Especially during and after an economic recession, the chances of losing your home are much greater. One way in which a borrower can save himself from losing his home is by making an agreement with his lender, in which the lender agrees to not foreclose on the borrower’s mortgage, if the borrower agrees to start making payments that will bring him up to date on his mortgage repayment.

This agreement is called mortgage forbearance and it’s designed to help borrowers who are going through tough financial times. Borrowers can stop making mortgage payments or even postpone them for a period of time, after which they can catch up and resume making regular monthly payments. Mortgage forbearance also allows the borrower to negotiate some of the default amount with their lender.

Is Mortgage Forbearance the Right Option for You?

Mortgage forbearance is a good option for those who experience temporary financial hardships, such as changes in employment, an expensive divorce, a death in the borrower’s family, having to temporarily pay two mortgages due to a job relocation, military service, or being jailed. If you consider that your financial troubles are only temporary and you will be able to recover shortly, then mortgage forbearance is worth taking into account.

If your financial hardship is of a more permanent nature, your lender may still agree to a mortgage forbearance if they consider that you have enough equity in your home and will be able to refinance with another lending institution. Either way, you will need to go through the necessary steps in order to obtain a mortgage forbearance agreement.

Obtaining Mortgage Forbearance

  1. Analyze your financial situation and call your lender. Carefully analyze not only the unexpected decrease in income or increased expenses, but also every source of monthly income and all expenses. Your lender will want to know all these aspects of your financial situation in detail, so researching them thoroughly will help you and your lender both better determine if your financial crisis is temporary or permanent, and how long will it take you to recover. Your income sources may include salaries, child support, financial aid, pension or veteran’s benefits, home rental income and others. Expenses may include loan and rental payments, food, utilities and many others. Having every source of income and expense laid out in front of you can also help you determine where improvements can be made in order to get out of this situation quicker.
  2. Write a hardship letter. After writing down all your sources of income and expenses, and determining that even after making changes, your expenses are still greater than your income, it is time to document your financial situation to your lending institution through a hardship letter. Lenders have great resources for finding out information about your income and expenses, so it’s recommended to be completely honest and provide all of the necessary information in your hardship letter.
  3. Sign the mortgage forbearance agreement. After receiving your hardship letter, if your lender approves your request for mortgage forbearance, the last step is for you to read the agreement and sign it. The lender agrees to not file for foreclosure for the duration of the agreement, and you agree to catch up on your mortgage payments. Mortgage forbearance will not waive the interest that you must pay, or the late fees.

Mortgage forbearance is a great way of getting back on track with your mortgage repayment and avoid losing your home to foreclosure. But before committing yourself to this agreement, make sure that you fully understand what it involves, and that you will be able to recover from your financial hardship in a short time. Also, make sure that the mortgage forbearance is the right choice for your financial needs and not just a tool that will help postpone the inevitable mortgage default.


When is the Right Time to Refinance?

When is the Right Time to Refinance- 150x150For most homeowners faced with the constant ups and downs of the housing and credit markets, knowing exactly when to consider refinancing existing mortgages can seem much like a roll of the dice. Crunching a few numbers into online mortgage calculators is a good way to get a sense of where things stand on a preliminary basis, but examination of the long-term effects need to be evaluated. Factoring each of the motivations behind the decision involves weighing both sides of the equation – the potential savings and the realistic expenses – to determine the feasibility of the refinancing plan.

Closing Costs Vs. Monthly Savings

Common sense dictates current interest rates are the primary factor behind most refinancing decisions. Usually, when the prevailing rate drops by at least one percent, most mortgage advice will steer homeowners towards refinancing as it is worth the effort. The bottom line is best evaluated in regards to what effect the refinancing formula has on the monthly payment when compared to the associated mortgage closing costs. By performing a simple comparison, and using an average closing cost of around $3,000 for a typical home loan, assume the monthly repayment figure to be in the neighborhood of $1,800. Refinancing may reduce this number by approximately $200 each month, which appears to be acceptable, especially when applied to budget savings.

Up-Front Cost Vs. Long-Term Gain

However, the real benefit can only be factored in by determining the length of time the homeowner plans on staying in the residence. If the refinancing option has any value, it is advisable to take the numbers one step further. Use the $3,000 closing cost, and divide it by the projected monthly mortgage savings estimate of $200. The answer yields a 15 month duration before the effect of refinancing produces a positive influence on the result. If the homeowner relocates before the 15 months is up, there is no monetary benefit to the refinancing decision. Only if the homeowner stays in the residence beyond this ‘cut-off’ date will refinancing options begin to make any economic sense.

Things to Remember Before Refinancing a Mortgage

Things to Remember Before Refinancing a Mortgage- 150x150The option of refinancing a home mortgage requires serious analysis. It is a financial mechanism that allows a homeowner to pay off their existing or original home loan by renegotiating a new mortgage with better terms, ultimately providing budget-saving benefits. It can potentially allow a homeowner to save significant amounts of money in interest payments over the long-haul, or it can boost the equity time-table as well. The refinancing option can also be less than favorable if it is not approached with a good plan and sound motivations for doing so before signing the bottom line.

Evaluate All Costs

While most lenders would be happy to discuss refinancing, there are costs involved that might not be presented as clearly as they should be in the initial discussions. It is advisable to request a complete list of all costs and fees, especially hidden ‘third party’ or ‘padded’ fees for services. In addition, there may be prepayment penalties on the original mortgage that can be quite steep, but must be factored in. These costs could negate the refinancing benefits.

Switching Loan Types

The primary motivation for refinancing is usually the interest rates applied to the original loan. If the original loan was an adjustable rate loan type (ARM), the best advice is to switch to a fixed rate mortgage to stabilize the monthly payment. At the very least, the previous ARM interest rate was set higher than the current mortgage rates, so renegotiating for a lower rate with either loan type is usually advantageous.

Seek Multiple Loan Offers

The best advice is to shop around for the best available offers, either from local lending sources or those found online. Refinancing can be expensive if it is not researched adequately. However, there are often many fees in the lending and closing process that can be negotiable and the competition for business in the current market is in the borrower’s favor. While the lenders are out to make a profit, the goal in mortgage refinancing is to make owning a home more cost-effective for the homeowner.

Mortgage Refinancing Factors to Consider

Mortgage Refinancing Factors to Consider- 150x150Everyone has an idea about what mortgage refinancing entails. But, for those who don’t, here it is in a nut-shell. The mortgage refinancing process can provide a homeowner with a few cost-saving options to improve their cash flow, or make their current mortgage a little easier to manage. Homeowners can use cash from the new loan for various purposes or they can simply borrow enough to rewrite the first mortgage into one with much better terms. Here are a few factors to consider before making this option a reality.

Financial Motivations

The most important reason behind exploring the refinancing option and mortgage refinancing rates is to take advantage of current mortgage interest rates. A lower interest rate will have a dramatic effect on the monthly payment obligation, which can be a huge benefit to any household budget. Over time, this will also reduce the overall cost of the loan by a substantial amount. By doing a little math, you see that a $200 reduction in the monthly payment puts $24,000 dollars back into a homeowner’s budget over the course of just ten years.

Mortgage Type – Fixed or Adjustable

Another option in refinancing is to consider switching the type of mortgage loan to save money. In this case, an adjustable rate mortgage with a higher ‘adjusted’ rate can be re-worked as a fixed-rate mortgage to stabilize the monthly payments. On the other hand, an adjustable rate mortgage loan (ARM) usually begins with a much lower interest rate, which may work to the homeowner’s benefit in the short-term, if remaining in the home only until the rate ‘adjusts’ back up is part of the strategy.

Naturally, there are certain fees and closing costs to consider, but in some cases, a lender will offer the option of adding these costs into the new loan. Bear in mind, that closing costs for refinancing can be in the range of 3% to 5% of the loan amount. But if the lender of the original loan is willing to renegotiate, there are a few ways to cut down on the closing costs as well.

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.

Should I Refinance My Home?

should I refinance- 150x150With interest rates at an all-time low, many homeowners are beginning to wonder whether they should refinance their mortgages. There are many things to consider when thinking about refinancing so be sure to put in the effort to research all of the things you should know before making a final decision. In helping you with your decision, also look at Pros and Cons of Refinancing as well as our Top 10 Refinancing Tips. But first, take a look at these resources we have put together to help get you started.

Crunch Numbers: Refinance Calculators

There are many refinance calculators available online, and you can use any of them to crunch numbers and determine the specifics of your mortgage situation. The calculator will ask you to enter several facts about your existing mortgage: the current amount of your loan (the balance owed), the interest rate you are paying, the term of your mortgage (fifteen years, thirty years, etc.) and the year your mortgage originated. (A side note: If your loan is not a fixed rate mortgage, there will be some guess work involved, since not even a computerized calculator can predict future interest rates.)

Next you will be asked to provide specific numbers for the proposed new loan. The amount of the loan might simply be the amount of the balance you still owe on the original mortgage, or perhaps you would like to add an additional amount, such as balance owed on credit cards, so you can use the refinance to consolidate other debts as well.

Next you will be asked to fill in the interest rate for the new loan. The resources provided with online refinance calculators should include the current interest rates for standard loan types (thirty year fixed rate, etc.), so you can select the appropriate number for the loan for which you intend to apply. Finally, you will be asked to provide the term of the new loan, and the refinance fees, which your bank can estimate for you.

Comparing the Old and the New

Once you have crunched numbers with the refinance calculator, you will have the information in hand to help you make a decision about the potential advantages of refinancing. Some of the relevant statistics will include the prediction of how much time it will take you to “break even” from the costs of the refinance. For example, if it will take four years for you to offset the expense associated with refinancing, the refinance will not be worthwhile if you do not intend to stay in the house for four years. But if you do intend to stay long enough to benefit from the refinance, there are still other factors to consider.

  • Will the refinance fees be rolled into the new loan, or will you have to come up with sufficient funds to pay the fees upfront?
  • Does refinancing lower your monthly payments?

One option to consider, if your income allows, is to keep paying the same monthly amount you have been accustomed to paying, with that extra amount going toward the principal. The loan will be paid off more quickly, and you will save money on the total interest you would otherwise have paid. You can use another online calculator to find out how much money this will save you over the life of the loan. With the help of calculators to break down the numbers, you can easily make a decision about the advantages of refinancing.

Pros and Cons of Mortgage Refinance Programs

Pros and Cons of mortgage refinancingRight now historically low interest rates are abundant, so you might be wondering if you should refinance your mortgage loan. Unfortunately, the low rates aren’t the only factor that should help you make a decision. Things like your interest rate, the cost of refinancing, whether you’re planning on moving out in the near future, and the loan to value ratio all come into play when deciding to refinance. Let’s talk about the pros and cons of mortgage refinancing, so you can get an idea about the direction in which you should be heading.

Pros of Refinancing

Depending on the factors that were mentioned earlier in this article, refinancing might be a very good option for you. Here are some of the pros that might make you consider refinancing:

  • The main advantage when refinancing is that you could be saving money by reducing the interest rate, which will result in a lower monthly payment and a lower cost of the loan.
  • If you have equity in your home, you can take cash out, which can be used to pay other debts.
  • You have the option of shortening the loan repayment time, which will lower your interest costs. Make sure your mortgage terms don’t include a prepayment penalty before changing the loan repayment time.
  • You can change the mortgage type from adjustable-rate to fixed-rate and vice versa. Fixed-rate loans are advantageous to people who are looking for a fixed monthly payment for the duration of the loan. Adjustable-rate loans work better for people who are planning to move after a short period of time.

Cons of Refinancing

Of course, with pros, there usually are some cons, as well. And it’s equally as important to know what risks you’re exposing yourself to when planning to refinance:

  • The main disadvantage is that you may be losing money by paying fees and closing costs that can add up and actually cost more than what you’re saving by refinancing.
  • Not having good credit will lead to a higher interest rate, and that will increase the overall cost of your loan.
  • Getting approved for a new mortgage loan can prove to be difficult, as banks have become stricter with their requirements. Trying to get a loan with bad credit, or while not being able to justify your income will most likely get in the way of refinancing.
  • Changing your mortgage type or loan repayment time could result in paying more interest than with your original mortgage.

Ultimately, deciding whether to refinance your mortgage or not depends on each person’s situation. Refinancing can be the right choice for you and your family, but only if you take the time to do the research, shop around, and make sure you know all the advantages and risks.

Should I Refinance My Mortgage?

should i refinanceWith some hopeful economic indicators appearing on the near horizon, as well as the housing and construction markets showing a few positive signs of life, homeowners are evaluating their options on refinancing current mortgages due to current interest rates being at record-setting lows. Beyond the basic question of “should I ?”, is also the critical issues of either “when”, or “if” to be factored into the equation. Before any of these points are examined, there are a few criteria to ponder, given that there are a multitude of individual factors that weigh in on this decision. All have a significant and long-term financial impact upon the refinancing option on an existing home mortgage. To begin, here are a few things to determine:

  • The current or existing interest rate and APR applied on the mortgage
  • The type and term of the existing mortgage ( 30-year fixed, 5/1 ARM, etc. )
  • The current mortgage having a pre-payment penalty charge
  • The length of time, in number of years, planned on residing in the home
  • The current home market value in comparison to the outstanding mortgage balance
  • The interest rate available on a new mortgage based on current credit ratings
  • The expenses associated with refinancing a new mortgage

Locating Your Key Mortgage Information

Most, if not all of the criteria listed above can be determined either by examining the relevant mortgage documents on file, or by checking with the lending institution or mortgage company that handled the transaction or loan process, including the mortgage balance remaining on the loan. On matters regarding the current home value, either seek the services of a private appraisal service, or wait until an appraisal is done during the loan application process. Another option is to review what comparable and recent home sales have been in the neighborhood, or request a market survey from a local realtor.

Probably the single most influential factor in determining both the chances of a loan refinancing approval, and the affordability of the loan, will be the credit scores and the subsequent current mortgage interest rate offered. Some internet research will reveal the current interest rates within the national and local markets, whether they be banks, credit unions or mortgage companies. These published rates will most certainly be the best mortgage  rates, and not necessarily those a borrower will eventually qualify for.

Evaluating the Costs and Tallying the Numbers

Depending on the lending source and requirements, a borrower will obviously seek the most favorable terms and the lowest closing costs. The associated closing fees will be quite extensive, and will include those for the application process, appraisal, tax services, flood certification, credit reports, doc stamps, title and transfer fees, points, surveys, attorneys, recording fees, and much more. Many of these items, including the interest rate offered, can be detailed on a Good-Faith Estimate (GFE) provided by a lender of choice, and are not binding until the application process moves forward. Any pre-payment penalties need to be factored into the overall cost breakdown as well.

With these numbers well in hand, the next step is to determine if what is owed on the existing home is less than what it is currently worth. If a borrower is ‘underwater’, or owing more than the value of the home, then qualifying for refinancing will be slim without putting substantial funds on the bargaining table, which may negate the whole process. In addition, an interest rate comparison is needed to assess further progress advantages. It is generally felt that unless the rate offered is at least 1% lower than the existing APR, then the ‘cost’ of refinancing is less than worthwhile.

Short-Term Savings versus Long-Term Benefits

Another factor is the length of time a borrower decides to stay in the home – too short, and the costs of the refinancing expense will not be recovered. Conversely, if the current mortgage rate is adjustable on the existing loan, say at presently 4%, it could conceivably rise to a level during the remaining term of the mortgage, to say 9%, which makes refinancing with a fixed-rate loan that much more affordable, even with the identical interest rate applied. Another option is to investigate shorter loan terms, alternate loan types, or base the refinancing decision on monthly payment affordability.

mortgage refinanceOne final note on the monthly payment side of things; if the goal is to merely lower the monthly payments, then refinancing with a lower interest rate will certainly accomplish that. However, if a borrower is ten years into a thirty year mortgage, and decides to refinance into a new thirty year commitment, even with a lower interest rate, the downside is the interest paid out over the additional ten years. In the end, the quickest and most informative method to determine if “should I ?” is the right course, is to grab hold of a mortgage calculator, create a few ‘scenarios’, crunch the numbers, and see how the refinancing pros and cons play out before coming to a conclusion. It is certainly a far better method than simply rolling the dice, or flipping a coin.