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Five Steps to Cash-Out Refinance

Thu, 6 Mar 2008 10:00:00 EST

Five Steps to Cash-Out Refinance Follow these steps to determine if cash-out refinancing is right for you.

Cash-out refinancing can allow you to access the cash through the equity of your home. Before you initiate a cash-out refinance read through these steps.

Step 1: Assess your need.
How much cash do you need and what do you need it for? This step may sound obvious, but it is helpful to be very concrete and specific. Your home is likely your largest investment and it is important to protect it. A good rule of thumb is to use equity for anything that is an investment in the future of you or your family. Smart uses of your home's equity include home improvement, debt consolidation, or tuition. In the case of home improvement, do your homework - will the value of the improvement equal or exceed its cost?

Step 2: Assess your equity.
Equity is the difference between the market value of your home and how much you owe on your mortgage. It represents the amount you have available to take out as cash when you refinance.(Although it is wise to use only a portion of your total equity.) Be aware that some lenders will not let you take out 100% of your available equity, and you may need some cash to pay off closing costs.

Step 3: Do the math.
Since cash-out refinancing may involve taking out a larger loan amount, your mortgage payment may go up. By how much depends on many factors: the term and the interest rate of the new loan, for instance. The interest rate, in turn, is determined by factors like the loan type (fixed- or adjustable-rate) and your credit score. It's a good idea to check your credit score before you initiate a cash-out refinance. Then use our cash-out refinance calculator to run the numbers.

Step 4: Choose a lender and apply.
By now you've done your homework - you know how much equity you have, how much cash you need and what monthly payment you can afford. You are ready to apply. Fill out our two-minute GetSmart form and get matched to up to five lenders.

Step 5: Close your loan and use your cash.
Expect it to take three to four weeks to close your loan. During this time, the lender will schedule an appraisal if necessary, and you'll need to send your lender any documentation they request (like W-2s and asset verification, for instance). Your lender will also work with you to schedule a closing date. This is where you will sign the paperwork and, unlike when you purchased your home, the lender will hand you a check. Don't let it burn a hole in your pocket; deposit and put it to work for you, according to your plan.

How Reverse Mortgages Work

Thu, 15 Nov 2007 17:19:00 EST

How Reverse Mortgages Work An explanation of a loan option for older homeowners.

What is a reverse mortgage?
A reverse mortgage is a loan using your home as collateral that you don't have to repay as long as you live in the home. Unlike a traditional mortgage loan, where you make monthly payments in order to pay down principal and build up equity (the portion of your home you "own"), a reverse mortgage works the opposite. You get money each month, and the amount owed on the home increases as your equity decreases. You do always retain the title to your home.

Who's a reverse mortgage for?
Let's say you are a homeowner, 62 years or older, and on a fixed or limited income. You may feel house-rich and cash poor. Your home may represent a significant value that you want to tap into for living expenses.

Traditional methods of accessing that equity include a home equity loan or line of credit, or a cash-out refinance. But those loans require repayment in the form of a monthly payment. Another traditional option is to sell your home and live off the proceeds.

A reverse mortgage, however, allows you to stay in your home, while still taking advantage of the equity you've built.

How does a reverse mortgage work?
The lender assesses the value of your home, your age (to be eligible for a HUD reverse mortgage you must be at least 62) and current interest rates to qualify you for a reverse mortgage. Typically, the older you are and the more equity you have in your home, the more you will qualify for. In fact, to qualify you must own your home outright or have a low mortgage balance.

You can take the funds from a reverse mortgage as either a monthly payment or as a line of credit where you can access the cash when you need it, or as a combination of these. The reverse mortgage loan does not need to be repaid until you permanently vacate your home. And, what you owe will never exceed the value of your home. When you do vacate the home, you or your estate repays the proceeds from the reverse mortgage as well as interest and fees. Any remaining equity in your home would go to your or your heirs.

Crunch the Refinance Numbers With Mortgage Calculators

Mon, 1 Oct 2007 16:00:00 EST

Crunch the Refinance Numbers With Mortgage Calculators You don't have to be an expert to make smart decisions. Use these calculators to answer your refinance questions.

You don't have to be an expert to make smart borrowing decisions. The GetSmart® mortgage calculators can help answer your refinance questions. Here's more on what each calculator does and how it works.

Cash-out refinancing versus home equity loan calculator
There are several options for accessing the equity in your home. Use this calculator to compare monthly payments and long term costs associated with a cash-out refinancing and home equity loan. You will need to know the current value of your home, as well as your original mortgage information - loan amount, interest rate and term. You then compare the interest rates for a new mortgage and home equity loan. If you don't already have loan offers, you can find national averages at www.freddiemac.com.

Refinance savings calculator
Refinancing can save you money in the long run, but the up-front price tag of refinancing can be hefty. Use this calculator to find out if you'll save money by refinancing. This calculator will help you determine the break-even point of your refinance - how many months of lower payments will make up for the closing costs on your new loan.

Be sure to find out if your current loan has a penalty for paying off your loan early. If you decide to buy discount points to lower your rate, keep in mind this will increase your upfront costs and increase the length of time to reach your break-even point.

Debt consolidation calculator
Overwhelmed by monthly bills? Use this debt consolidation calculator to see if you could lower your total monthly payments with a consolidation loan. You could consider consolidating loans and debts such as a car loan, credit card debt, retail store credit (furniture, appliances or electronics, for instance). Since your monthly payment on credit cards varies, estimate by using an average of what you usually pay, or by taking a percentage your card balance.

These refinance calculators are designed to help you make smart financial decisions. The more accurate the information you input into the calculator, the more applicable the results.

Refinance Terms

Fri, 15 Jun 2007 16:00:08 EST

Refinance Terms Refinancing your mortgage involves understanding notoriously complicated industry jargon. Use this guide to master the refinance lingo.

Are you refinancing your mortgage and confused by the industry jargon? Here's help translating the lingo:

Types of Refinance Mortgages

Rate/term refinance. This type of refinance changes the interest rate and/or the length of the mortgage. Because of the variability of interest rates, any time you refinance you will change the interest rate (and therefore the payment). As for the term, let's say you've been in a 30-year mortgage for five years. There are 25 years left on your term. You can refinance into a new 30-year mortgage, which lengthens the term from 25 years to 30 years, which may lower your payment.

Cash-out refinance. This type of refinance will result in a new mortgage that, in addition to changing the interest rate and possibly the term, also changes the principal - the amount you still owe on your home, not including interest. 'Cash-out' refers to refinancing into a new mortgage for more than you currently owe, so you can take out the difference in cash.

Types of Mortgages

Fixed-rate mortgage. With this type of mortgage the interest rate and payment will never change for as long as you keep your mortgage.

Adjustable-rate mortgage (ARM). Here, the interest rate changes - monthly or annually, depending on the loan. There are many different types of adjustable-rate mortgages: including ARMs where you only pay the interest on your loan (and don't reduce the principal), and ARMs with initial periods of fixed interest, usually ranging between one and ten years.

Interest Rate Terms

Interest rate vs. Annual Percentage Rate (APR). Interest rate is the percent of the loan amount the lender charges you to borrow money. APR calculates all the costs of the loan (closing costs, discount points and other upfront fees - more on these terms below) and expresses them as an annual percentage of the loan amount. APR is a truer expression of the cost of the loan than the interest rate is.

Points. This is a confusing term, because mortgage professionals use it in many different contexts. When used in the context of interest rate, it means

How to Pay for a Home Renovation

Thu, 14 Jun 2007 10:00:09 EST

How to Pay for a Home Renovation Renovations can improve the value of your home and are often considered a good investment. Here are different loan types to consider.

Cash-out refinance
This option takes advantage of the equity you have built up in your home by refinancing your current mortgage for one larger than your current balance and taking out the difference in cash. For example, say your home is worth $250,000 and you still owe $150,000 - you have $100,000 in equity that you could use to finance your renovation. Cash-out refinancing often has attractive interest rates, but refinancing costs can be expensive, so do the math.

Home equity loan
A home equity loan is a second mortgage on the available equity in your home. The interest and term are generally fixed, but the interest is usually higher than a first mortgage, and the term shorter. On the other hand, there are often fewer fees and closing costs. You get the entire loan amount in one lump sum, which can be useful if you are paying a contractor.

Home equity line of credit
Think of a home equity line of credit as a credit card tied to your home's equity. This is the most flexible of home equity options. Once the lender has approved your line of credit, you can access it through either checks or a credit card. You only borrow what you need at any given moment - perfect for making purchases at the home improvement store or paying contractors in stages. Pay back what you've borrowed either all at once or in a small monthly payment - an advantage if cash-flow is an issue. Typically, the interest rates for lines of credit are variable, but some lenders allow you to fix the rate on a certain portion of the line of credit.

With all three options - cash-out refinancing, home equity loan and line of credit - interest payments are usually tax deductible. Check with your tax advisor about your personal situation.

Personal loan or line of credit
This is an option if you have limited equity in your home and your project is fairly small. Interest rates are generally higher than home equity options and interest may not be tax deductible. However, a personal loan or line of credit usually carries fewer fees.