Posts Tagged ‘ReFinance’

Real Estate – What is a “Cash Out” Re-Finance?

Wednesday, December 30th, 2009

A “cash out” re-finance basically permits the homeowner to re-finance their home for an amount larger than the balance of the existing mortgage. The homeowners are given a check for the amount above and beyond the balance of the existing mortgage and then repay the existing balance plus the additional amount over the course of the loan period. The homeowners can use the check for any reason they choose now and pay back the debt along with the rest of re-financed amount.

When is a Cash Out Re-Finance possible?

A “cash out” option is available when there is existing equity in the home. This is crucial because the lender is able to justify the practice of presenting increased funds to the homeowner due to the value of the property. This is because the lender thinks that the security of having the home for collateral does not put them at a high risk for the homeowner defaulting on the loan.

Homeowners who want to take advantage of a “cash out” re-finance offered by a lender, should first ask whether or not the lender offers this type of re-financing. Not all lenders offer this choice. It should actually be the first question the homeowner asks when inquiring about re-financing programs. Homeowners who are seeking a “cash out” re-finance may save a great deal of time.

How Can the Cash be Used?

For many homeowners the most tempting aspect of cash out re-financing is that the additional funds can be used for any purpose desired by the homeowner. The homeowner does not even need to offer the lender an explanation of how the additional funds will be used. Once the lender writes the check for the additional funds, he has no concern for how the money is spent. The amount of the additional funds is simply rolled into the re-financed mortgage. The lender focuses on the homeowner’s ability to repay the mortgage and is not concerned with how the homeowner uses the funds which are released in the cash out.

While the purpose of a “cash out” re-finance does not have to be disclosed to the lender, the homeowner would be wise to use these funds in a judicious manner. The homeowner will be responsible for repaying these funds to the lender. Some of the popular uses for funds collected from cash out re-financing include:

* Undertaking home improvement projects
* Buying things for the home
* Going on a dream vacation
* Putting money in a child’s tuition fund
* Buying a vehicle
* Starting a small business

All of the things listed above are great uses of a “cash out” re-finance alternative. Homeowners who are thinking about this kind of a re-financing option should also contemplate whether or not the deductions are tax deductible. Using the “cash out” option to make home improvements is an example of a situation where the funds can be tax deductible. Homeowners should check with their tax attorney on the matter to find out whether or not they are able to deduct the interest from the repayment of their re-financing loan.

”Cash Out” Re-Financing Example

The process of a “cash out” refinancing option is fairly easy to explain. Consider a homeowner who purchased a $600,000 home some years ago with $60,000 down and a 7% interest rate. Today, if this home is worth $750,000 and a lender will do a 90% cash out loan at 6.25%, the homeowner could receive a new $675,000 loan. After payoff of the existing $540,000 loan, $135,000 would remain. Reduce this by the original $60,000 down payment, and $75,000 could be used any way the homeowner wished. To keep it simple, the small principal reduction of the existing loan or the acquisition cost of the original purchase of the new cash out loan has not been factored in. Before deciding to get a “cash out” loan, one should sit down with their finical advisor and calculate all expenses and tax implications involved. With this additional type of funding available, the homeowners have the opportunity to use the equity in their home to make their dreams come true. This process allows the homeowner to take advantage of the existing equity in their home. Copyright 2008 Promotions Unlimited – websitetrafficbuilders.com. All rights reserved

Bob Schwartz, San Diego real estate broker with w/30 years exp. He has a popular San Diego real estate blog Bob’s other sites are: Downtown San Diego real estate & San Diego real estate agents

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When is it a Mistake to Re-finance?

Thursday, December 10th, 2009

Many homeowners make the mistake of thinking re-financing is always a viable option. However, this is not true and homeowners can actually make a significant financial mistake by re-financing at an inopportune time. There a couple of classic example of when re-financing is a mistake. This occurs when the homeowner does not stay in the property long enough to recoup the cost of re-financing and when the homeowner has had a credit score which has dropped since the original mortgage loan. Other examples are when the interest rate has not dropped enough to offset the closing costs associated with re-financing.

Recouping the Closing Costs

In determining whether or not re-financing is worthwhile the homeowner should determine how long they would have to retain the property to recoup the closing costs. This is significant especially in the case where the homeowner intends to sell the property in the near future. There are re-financing calculators readily available which will provide homeowners with the amount of time they will have to retain the property to make re-financing worthwhile. These calculators require the user to enter input such as the balance of the existing mortgage, the existing interest rate and the new interest rate and the calculator return results comparing the monthly payments on the old mortgage and the new mortgage and also supplies information about the amount of time required for the homeowner to recoup the closing costs.

When Credit Scores Drop

Most homeowners believe a drop in interest rates should immediately signal that it is time to re-finance the home. However, when these interest rates are combined with a drop in the credit score for the homeowner, the resulting re-financed mortgage may not be favorable to the homeowner. Therefore homeowners should carefully consider their credit score at the present time in comparison to the credit score at the time of the original mortgage. Depending on the amount interest rates have dropped, the homeowner may still benefit from re-financing even with a lower credit score but it is not likely. Homeowners may take advantage of free re-financing quotes to get an approximate understanding of whether or not they will benefit from re-financing.

Have the Interest Rates Dropped Enough?

Another common mistake homeowners often make in regard to re-financing is re-financing whenever there is a significant drop in interest rates. This can be a mistake because the homeowner must first carefully evaluate whether or not the interest rate has dropped enough to result in an overall cost savings for the homeowners. Homeowners often make this mistake because they neglect to consider the closing costs associated with re-financing the home. These costs may include application fees, origination fees, appraisal fees and a variety of other closing costs. These costs can add up quite quickly and may eat into the savings generated by the lower interest rate. In some cases the closing costs may even exceed the savings resulting from lower interest rates.

Re-Financing Can Be Beneficial Even When It is a “Mistake”

In reality re-financing is not always the ideal solution, but some homeowners may still opt for re-financing even when it is technically a mistake to do so. This classic example of this type of situation is when a homeowner re-finances to gain the benefit of lower interest rates even though the homeowner winds up paying more in the long run for this re-financing option. This may occur when either the interest rates drop slightly but not enough to result in an overall savings or when a homeowner consolidates a considerable amount of short term debt into a long term mortgage re-finance. Although most financial advisors may warn against this type of financial approach to re-financing, homeowners sometimes go against conventional wisdom to make a change which may increase their monthly cash flow by reducing their mortgage payments. In this situation the homeowner is making the best possible decision for his personal needs.

John Ugoshowa. You are welcome to use this article on your


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Real Estate – Is it a Mistake to Re-Finance?

Tuesday, December 8th, 2009

Many homeowners make the mistake of thinking re-financing is always a viable choice. This is not always true and homeowners can actually make a significant financial mistake by re-financing at an inopportune time. There are a few classic examples of when re-financing is a mistake. This occurs when the homeowner does not stay in the property long enough to recoup the cost of re-financing and when the homeowner has had a credit score which dropped since the original mortgage loan. Other examples are when the interest rate has not fallen enough to offset the closing costs connected with re-financing.

Recouping the Closing Costs

To determine whether or not re-financing is worthwhile, the homeowner should think about how long they would have to retain the property to recoup the closing costs. This is important especially in the case where the homeowner intends to sell the property in the near future. There are re-financing calculators readily available that advise homeowners how long they will have to retain the property to make re-financing worthwhile. These calculators require input such as the balance of the existing mortgage, the existing interest rate and the new interest rate. The calculator returns results comparing the monthly payments on the old mortgage and the new mortgage and also presents information about the amount of time required for the homeowner to recoup the closing costs.

When Credit Scores Drop

Most homeowners think a drop in interest rates immediately signals that it is time to re-finance the home. However, when these interest rates are combined with a drop in the credit score for the homeowner, the resulting re-financed mortgage may not be favorable to the homeowner. Therefore homeowners should carefully consider their credit score at the present time in comparison to the credit score at the time of the original mortgage. Depending on the amount interest rates have dropped, the homeowner may still benefit from re-financing even with a lower credit score, but it is not likely. Homeowners can take advantage of free re-financing quotes to get a rough understanding of whether or not they will benefit from re-financing.

Have the Interest Rates Dropped Enough?

Another common mistake homeowners often make in regard to re-financing is re-financing whenever there is a substantial drop in interest rates. The homeowner must first carefully evaluate whether or not the interest rate has dropped enough to result in an overall cost savings for the homeowners. Homeowners often make this mistake because they neglect to think about the closing costs associated with re-financing the home. These costs may include application fees, origination fees, appraisal fees and a variety of other closing costs. These costs can add up quite quickly and may eat into the savings generated by the lower interest rate. In some cases the closing costs may even exceed the savings resulting from lower interest rates.

Re-Financing Can Be Beneficial Even When It is a “Mistake”

In reality, re-financing is not always the ideal solution, but some homeowners may still opt for re-financing even when it is technically a mistake to do so. This classic example of this type of situation is when a homeowner re-finances to gain the benefit of lower interest rates even though the homeowner winds up paying more in the long run for this re-financing option. This occurs when either the interest rates drop slightly but not enough to result in an overall savings, or when a homeowner consolidates a significant amount of short term debt into a long term mortgage re-finance. Although most financial advisors may warn against this kind of financial approach to re-financing, homeowners sometimes go against conventional wisdom to make a change which may increase their monthly cash flow by reducing their mortgage payments. In this situation the homeowner is making the best possible decision for his own personal needs. Copyright 2008 Promotions Unlimited – websitetrafficbuilders.com. All rights reserved

Bob Schwartz, San Diego real estate broker with w/30 years exp. He has a popular San Diego real estate blog Bob’s other sites are: Downtown San Diego real estate & San Diego real estate agents

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