Yale Roth M.A., M.Ed

Archive for the ‘Consolidation Loan’ Category

Are The Mortgage Rates The Same For a Cashout Refinance?

When I talk to homeowners who want to take cash out of their home through a cash out refinance, many of them will ask the mortgage question, “Are the mortgage rates the same for a cash out refinance?”

Here’s the answer.

“It depends.”

Sorry… it’s the world of mortgages where little is black and white.

If you’re doing a cash out refinance and the loan to value ratio is below 80%, the mortgage rates will be the same.

However, the cost to get the mortgage rate on a cash out refinance at 80% loan to value ratio will increase.

There are “pricing adjustments” that apply to cash out refinances.

Cash out refinances are seen as riskier loan types than traditional rate and term refinances where the homeowner just wants to lower their mortgage rate or change their mortgage term.

Just put yourself in the position of the lender.  If you were making a loan and you viewed the loan as a riskier loan (as the default rate is higher for the cash out refinance as opposed to the rate and term refinance), you would charge a slightly higher premium for the mortgage rate that you’re offering.

However, the pricing adjustments for cash out refinances drop as the loan to value ratio drops.

For example, there are no pricing adjustments that apply to cash out refinances if the loan to value ratio is below 60%.

So, not only is the mortgage rate the same as it would be if you were doing a rate and term refinance, but the cost of the mortgage rate would be the same too.

In conclusion, the mortgage rates are usually the same for a cash out refinance transaction; however, other factors like the loan to value ratio LTV can increase the cost to get mortgage rate.

Related Posts:

• Mortgage Rate Questions – “What Happens If My Mortgage Rate Lock Expires?”
• Mortgage Rate Questions – When Do Mortgage Rates Change?
• Mortgage Questions Video – “How To Shop For A Mortgage Rate”?
• Mortgage Services Money Talks – Where Can You Find The Lowest Mortgage Rates?
• Mortgage Services Money Talks – Do All Mortgage Companies Provide The Same Type Of Mortgage Services?

This is a really good mortgage refinance question I got this weekend: “Does it make sense to pay down or pay off credit card debt to qualify for a home mortgage refinance?”

Here’s the mortgage refinance scenario: My client has an existing mortgage with a rate of 5% 30 year fixed mortgage and has paid into it for 9 years, so he has 21 years remaining.  He plans on keeping the home as his kids are still young.

The problem is that he’s self employed and reported less income over the last 2 years – like most people.

He went to his current lender Bank America so see if he could refinance into a lower mortgage rate.

They loan officer there told him based on his reported income, his debt to income ratios are too high and that he wouldn’t qualify for a new mortgage refinance.

However, she suggested that if he paid off about $20,000 in credit card debt, he could qualify.

He asked me is this made sense.

I asked him how much he had in savings.  He told me less than $100,000, including retirement money.

I advised him not to deplete his savings to pay off credit card debt.

Taking 20k out was a judgment call on his side as the remaining 80k  is more than 6 months of his monthly income.

However, I suggested if he were considering paying the credit card debt (which is low fixed rate) off, he ought to alternatively look at an mortgage amortization calculator to see what would happen to his mortgage if he applied the 20k to that.

(Some people would advise just the opposite: that he should pay off the credit card debt first as the mortgage interest is tax deductible, etc.)

In this case, however, the credit card interest rate is low and fixed and the debt is unsecured as opposed to the mortgage debt which is secured against his home.

Normally, I don’t recommend applying large amounts of money to pay down on a home mortgage, especially if the home value currently isn’t increasing.   That’s like putting good cash against a non-performing asset.

However, since he’s committed to the home for the long haul, the credit card interest rates are fixed and low, and he’s not depleting his savings, he might consider applying the 20k against his current mortgage balance.

What’s his mortgage goal?

His goal is to pay off his mortgage asap.  Applying the 20k towards mortgage principal reduction could potentially be a positive first step towards accomplishing that goal.

If he can take many years off the remaining 21 years, and continues to prepay against the mortgage in monthly small amounts, he’ll reduce his net effective mortgage rate and save big money on the back end by paying the mortgage off sooner.

Consider taking the $1500 mortgage payment and saving it!  Moreover, he’s saving money in closing costs and saving time in gathering paperwork to complete the mortgage refinance.

I didn’t look at the amortization calculator, but it’s definitely worth considering taking the 20k and prepaying against the current mortgage as opposed to paying of the credit card debt so he can qualify for a mortgage refinance.

Related Posts:

• 3 Reasons Why You Have To Refinance Your Home Loan Now
• What Is A Mortgage Loan Refinance?
• Are You Getting Ripped Off By Using A Mortgage Broker To Refinance Your Mortgage?
• Is Your Mortgage Company Stealing Your Money At Your Refinance Closing?
• 2 Reasons Why You Don’t Have To Drop Your Mortgage Rate by 2% To Justify A Mortgage Refinance

Do You Have Any Mortgage Refinance Questions?

For those of you who have mortgage questions about refinancing, this is a valuable post.

The mortgage question: “When Does It Make Sense To Refinance Your Mortgage”?

There is a lot that goes into this mortgage question.

First, you want to ask yourself,  “What are you trying to accomplish by refinancing?”

Is it to lower your mortgage rate, or lower your mortgage payment, or shorten your mortgage term, or a combination of the three?

Is it to take cash out to and do a debt consolidation loan?

After determining your goals for refinancing, you want to look at the benefits and costs.  Naturally, you want the benefits to outweigh the costs.

Here are some questions you want to answer:

Are you dropping your mortgage rate?

How much are you saving from a monthly cash flow standpoint?

Are you taking years off your term?

How long do you plan on owning the home?

If you are lowering your mortgage rate and lowering your monthly payment, great!  If you’re taking years off your term, great!

Now, what are the costs?

Look at the total closing costs.  How much are you saving monthly?  Divide that figure into the costs to see how long it’ll take you to get your money back.

Is the recoup period less than 1 year, less than 3 years, 5 years, etc.

You want to be able to recover the costs in as few years as possible.

So if you’re saving $150 per month and your closing costs are $1500, it’ll take you 10 months to get your money back.  That’s a short recoup period.

How long do you plan on owning your home.  If you plan on selling it in the next 3 months, for example, then a 10 month recoup period doesn’t make sense.  It think you get the point I’m making.

The other element you want to consider is how much time you’ve already paid into your existing mortgage.

If you’re lowering your mortgage rate and mortgage payment but you’ve already paid into your existing loan for 7 years on a 30 year fixed mortgage, do you want to go back out 30 years for the benefit of lowering the mortgage rate and payment?

Look at an amortization table and look at the numbers to see whether this makes sense.  It may not.  You have to do the analysis.

To summarize the answer to the mortgage question: “When does it make sense to refinance your mortgage” you want to look at the benefits and the costs and make sure the benefits are greater.  Hope this helps!

Related Posts:

• Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”
• Mortgage Rate Questions – “What Happens If My Mortgage Rate Lock Expires?”
• Mortgage Rate Questions – When Do Mortgage Rates Change?
• Mortgage Rate Lock Questions – When Should You Lock Your Mortgage Rate (When You’re Buying A New Home)?
• Mortgage Refinance Questions – “Should You Lock Your Mortgage Rate?”

Should I Do A Cash Out Refinance To Pay Off My Home Equity Line Of Credit HELOC?

This is a very good mortgage question.

There are a lot of people who have home equity lines of credit HELOC as second mortgages and want to pay off their existing first mortgage along with the home equity line of credit HELOC.

A good idea, right? Consolidate the mortgages into one mortgage payment with a lower mortgage rate?

Does this make sense?

It depends.

First, if you plan on keeping your home for years to come and you’re currently not paying down on the home equity line of credit HELOC then perhaps it makes sense to pay it off.

Here are some mortgage questions you need to ask yourself:

How many years remain on the first mortgage you want to pay off?

Are you adding years to the new mortgage or are you going into a shorter term mortgage?

Is your new proposed monthly mortgage payment going to be higher or lower than the mortgage payment you’re currently making together with the home equity line of credit HELOC mortgage payment?

You want to look at mortgage costs and benefits.

If you’re lowering your mortgage payment and reducing your mortgage term (or not losing many years you’ve already put into the existing mortgage) and if you’re lowering your overall mortgage rate, then it would make sense to consolidate the first mortgage and home equity line of credit HELOC.

Here are the benefits: you’re reducing the mortgage rate on the first mortgage, lowering your monthly mortgage payment, eliminating the home equity line of credit HELOC that has a variable rate and will begin to rise and reduce the mortage term or keep the mortgage term roughly the same.

Here are the costs: whatever the closing costs are going to be based on the new mortgage refinance and closing a home equity line of credit HELOC that you could use to draw on in the future should you need cash.

The main mortgage question is: “Do the mortgage benefits outweigh the costs?” You decide.

Or send me an email with any additional mortgage questions.

Related Posts:

• Mortgage Questions – “How Long Does It Take To Close The Mortgage?”
• Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”
• Mortgage Rate Questions – “What Happens If My Mortgage Rate Lock Expires?”
• Mortgage Rate Questions – When Do Mortgage Rates Change?
• Mortgage Rate Lock Questions – When Should You Lock Your Mortgage Rate (When You’re Buying A New Home)?

Watch this video:

www.YaleRoth.com In this video post Yale Roth answers the question: Does it make sense to do a debt consolidation loan?  The video is very informative and lasts about 3 minutes.

Yale Roth is a FHA Mortgage Specialist and provides mortgages for homeowners throughout the United States. 

Call Yale at 561-350-7684 with any mortgage-related problems or visit his rate page at http://www.YaleHomeLoan.com

Related Posts:

• Mortgage Video FAQ – Is An Attorney Necessary To Close My Mortgage?
• Mortgage Video FAQ – “What Makes Up The Borrower’s Closing Costs When Buying Or Refinancing”?
• Mortgage FAQ #7 – What’s The Difference Between A Cash Out And Regular (Rate/Term) Refinance?
• Mortgage Video FAQ – What Makes Mortgage Rates Change?
• Mortgage Rate Update. Thursday, April 8, 2010