Like everything thing else, life is going up and down. Sometimes there is a need for extra cash, or sometimes we need to trim off some of the expenses. A mortgage usually the first one to come up, because about 80% of America, over 50% of their income are going into mortgage expenses. So either you are looking for ways to lower your mortgage payment or looking for cash out from your current home to take care of that needs, this article is for you.
One way to get Cash Out from your home or Lower the Payment is refinancing?
These are the benefit of refinancing:
- Reduce your interest rate: When interest rates fall, you might be able to lock in a lower rate via refinancing and save thousands of dollars over the life of your loan. For instance, Match 2020, the interest rate had drooped significantly to a mid 3% for 30 years fixed rate, and a low 3% for 15 years fixed rate. Talk to your lender about fees and the rate you qualify for to see if this makes sense for you to pull the trigger. If you don’t have a good loan officer, we have the best of the best.
- Tap into your home’s equity: For equity-rich homeowners who need low-interest cash for home improvements or even emergencies, cash-out refinancing can be a good option. But make sure you can get the same or a lower interest rate than you currently have, otherwise you’ll end up making your mortgage more expensive.
- Shorten or Extending your loan term: Shortening your loan term is a strategy for borrowers who want to get out of mortgage debt faster as well as pay less interest over the life of their loan. For some, extending the loan term back to 30 years might be a great strategy, so they can use the money for other investments as Angel Home Solution does. Having a 3.5% interested cash to buy houses in our local area is an amazing strategy. Others might prefer to pay less monthly for a longer period, so they can keep up with the economic inflation, and not being so stressed about bills, food, behind on mortgage payment, or simply have the budget for a vacation to spend time with loved one.
- Switch mortgage types: Depending on the type of mortgage you have, refinancing into a different type of home loan might be an advantage. One example is going from an adjustable-rate (ARM) to a fixed-rate mortgage, which locks in your rate so you’re not exposed to market fluctuations. Most people have 5 or 7 years ARM, but don’t wait until last minute to renew or lock in the fixed-rate… too risky if the rate suddenly sky rocked.
- Get rid of PMI: Once your loan-to-value, LTV, reaches 20 percent, you can ask your lender to get rid of PMI, private mortgage insurance. PMI could be pretty costly. typically ranges from .55 percent to 2.25 percent of the original loan amount each year, according to data from Ginnie Mae and the Urban Institute. With these rates, it means that for a $200,000 mortgage, your PMI can cost between $1,100 and $4,500 each year, or around $91.66 to $375 per month. It makes sense wipe away PMI and if you can also get a lower rate, you are golden!
When refinancing may not make sense:
- Refinancing into a longer-term: if you have only 10 or 15 years left on their mortgage, you might not want to refinance back into a 30-year loan, which will extend their interest payments and end up costing them more. But you can always consider refinancing to the leftover year, like 15 years loan.
- Closing costs outweigh the savings: If the rate drop is not significant, and If your closing costs are higher than what you can save, and you can’t recoup that in a year or two, then refinancing might not be the best option. Your loan officer should be able to analyze the breakeven point and the years to recoup the cost, and so you can make an educated decision.
- Consolidating debt: Using a cash-out refinance to consolidate debt can be a good strategy (this is because cash-out refi typically has lower interest rates than credit cards), unless you end up racking up more debt later.
- Spending equity to float lifestyle: Many experts warn against using your home equity as an ATM machine. Resist the temptation of tapping your equity for vacations and another non-essential spending.
How to refinance
Refinancing a mortgage is much like applying for one. To start, you should shop around for lenders with the lowest fees and best rates. You can learn about different lenders from our of our resource page. Lenders might ask for a home appraisal. You’ll also have to go through a credit check and verify employment history. To get the best refinance rate possible, make sure your credit score is strong. Borrowers with a FICO score of 740 and above are going to get the best rate, says Beck.
For people with high balances, try to pay down your credit cards to one-third of the limit. This will pump up your score pretty fast, and DON’T be late on your payment!!!
A step by step guide to refinancing from Bankrate.com
- Crunch the numbers: Does it make financial sense to refinance? How long will it take to recoup closing costs? Are there better options?
- Check your credit report: Your credit score has the biggest influence on the rate you’ll qualify for, so make sure there are no errors on your report. Similarly, pay down debt, if needed, to boost your score.
- Comparison shop lenders: Ask for various lenders’ rate sheets so you can see about how much you’ll spend with each lender.
- Lock in your rate: A mortgage rate lock means that the lender agrees to honor the current rate (even if rates rise) throughout the closing process.
- Close on the mortgage refinance: This is the final step in the process. But, make sure your credit has not taken a hit during the time you applied and closing as it can affect your loan. Throughout the process, don’t open new lines of credit and be sure to make on-time payments on all your bills.
What documents do I need for a refinance?
When you apply for a mortgage (a new purchase or a refinance), lenders need some documentation about your finances to make their decision. You’ll likely need to provide:
- Copy of latest mortgage statement that shows your mortgage balance
- Copy of property appraisal report from the property appraiser (the lender typically hires the appraisal company)
- Proof of income, including the previous year’s W-2 and federal tax return, as well as your most recent pay stub.
- Documentation on additional earnings, like alimony, child support or employment stock options.
- A list of all debts, including credit cards, student loans, auto loans, alimony and child support, along with balances and monthly payments.
- An inventory of your assets, including bank statements, investment records, retirement accounts, real estate, and auto titles.
- Bankruptcy discharge papers, if you have had a bankruptcy within the last several years.
In some cases, you may also have to sign an IRS Form 4506-T, which allows the lender to get a transcript of your tax return from the IRS.
Finding the best rates
Finding the best rate starts with doing research on your own. You can quickly compare rates using Bankrate’s refinance rate table, which brings together many lenders to give you a snapshot of who’s offering the best rate.
What happens if you are not qualified for refinancing? But you need the cash?
There are other ways like Heloc, Home Equity Line of Credit, but it might require a similar level of financial qualification.
You can try to negotiate with your current mortgage holder to
- reduce or request an extension on the payment for a short period of time.
- request a reverse mortgage–where you don’t make any payment, but your principal will be decreasing every month.
- interest-only payment–this allows you to pay less every month, but you won’t be paying down your loan at all.
More Options to reduce your Mortgage Payment?
A mortgage consists of Bank Interest Rate on the money, Mortgage Insurance, Property Insurance, and Property Tax. We have discussed mortgage rates, mortgage insurance, different type of loans, and ways you can negotiate with your current mortgage lender. Is that it? Is there any other option to reduce the monthly payment?–Yeah, let talk about Insurance and Property Tax quickly.
Home Insurance
Typically home insurance will be handle by escrow to pay every renewal to reduce the risk to the lender of uninsured home… but that leads to an overage premium increase without you knowing.
It is said that what got measured got improved! so the reverse is also true… Your insurance premium will not be improved without you working on it. Statistic shows that insurance premiums raised automatically 5% to 17% every year! So should that be on your To-Do list to have a closer look? Maybe it is time to change the insurance company again!
Property Tax
Similar to Insurance Premium that it is managed and paid by escrow, but you don’t have much choice here, unfortunately! You might be able to explore the government programs to reduce the property tax or request for exemption! Not everyone will qualify! I am not 🙁
If you or delinquent on property tax, make sure you fix that ASAP, because your house can be foreclosed if you not late on your tax for an extended period of time. Learn more about the process if you are behind on your property tax at our local government website.
What do I do if I am not qualified for all the above? But I need to get the cash out for my family’s need!!!
I am sorry to hear that, but you are running out of choice, but selling your house at this point :(… You can learn more about how to sell your house quickly or sell your house for top dollar here. If there is any we can do to help please just give us a call at 425-272-9299 or fill out a quick form below.