Cash-out Refi
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Cash-out Refi - Cash-out refis, short for cash-out refinances, are very common types of refinances for consumers. A cash-out refinance is simply refinancing your home and using the equity in your home to get some extra cash back to you at closing. For example, lets say you have a home that is worth $200,000, you owe $120,000. This means you have $80,000 worth of equity in your home. Lets say that you want to get $20,000 cash back from refinancing to do some home remodeling. You would then refinance for roughly $140,000 (120k current loan balance + 20k desired cash out amount = 140k new loan amount) and you would receive $20,000 back from the new lender you refinance with after closing. While you could use all of the equity in your home, it is usually a good idea to try and stay at 80% LTV, loan to value, or below. Loan to value is the percentage of how much your home is worth divided by your loan amount (100,000 home value; 80,000 loan = 80% LTV).
There are many good reasons to get cash out. Many people will do this to pay off debts and improve their credit rating. Some people even cash out to take advantage of investment oppourtunities.
Cash Out Refinancing is one of the leading ways for borrowers to take profits from the increased value of real estate assets without recognizing a gain for tax purposes. If your home or other property has appreciated substantially over the past few years, cash out refinancing may be the most efficient means for you to separate cash from equity and take profits while the market remains high. Noted economists predict that housing prices may decline as much as 20% to 30% inflation adjusted over the next 5 to 10 years in the USA, so many borrowers are looking to cash out as much as they can from their properties to reallocate to another, more favorably performing asset class as a hedge against their real estate risk.
MTA Index Refinance - MTA stands for Monthly Treasury Average, and is also know as the MAT or 12 MAT. The MTA or MAT index is a relatively slow moving ARM index based on the 12 month average of the monthly average yields of United States Treasuries, which are securities sold by the US government to finance national spending and are backed by the full faith of the US government.
As an ARM Index, the MTA or 12 MAT index has become increasingly popular in recent years, thanks in large part to the popularity of the Option ARM mortgage for which it serves as one of the most common indexes.
Adjustable Rate Mortgages based on the MTA index are commonly called 1-Month MTA, 3-Month MTA, 12-month MTA, Pay Option ARM, and Pick a Pay Mortgage. While the MTA index itself is more stable than other common ARM indexes such as the CMT index on which it is based, many of the ARM mortgages based on the MTA have rates which adjust each month, even if you dont know it. This presents significant risks to the homeowner who does not understand these mortgages, which can be mitigated by fixing the rate on an MTA ARM by refinancing. Conventional fixed rate mortgages do not have minimum payment options, so many borrowers in MTA-based mortgages do not refinance to convert to a fixed rate because they do not want to make a large monthly payment. However, there are now options for borrowers in MTA index ARM loans to refinance into a fixed rate without sacrificing the minimum payment options. If you are currently in an MTA index-based ARM, and like the low payment caps, you may be eligible to refinance into a fixed rate mortgage (fixed for 3 to 30 years) while still preserving the flexibility of the "minimum payment" deferred interest option for which these loans are best known. These programs are not widely available, and are only offered to qualified borrowers. For more information on Refinancing your MTA Index Adjustable Rate Mortgage to a Fixed Rate Mortgage with similar payment options, call us at (800)515-8443 or request information by email (include your state, the value of your home, and the balance of your mortgages in your message) at Fixed@RefinanceOne.net
The majority of MTA indexed mortgages are Option ARMs. Most of these option ARM mortgages use the 1 month MTA index, and their rates adjust monthly, although you wouldn't know it because option arm loans have payment caps which keep the minimum payment fixed even though the underlying rate may change. This monthly adjustment with an annual payment cap is really the riskiest part of being in an option ARM, because you may be deferring substantially more interest than you realize. For borrowers in option ARM mortgages, look into a fixed rate pay option product, or fixed option arm, which provides you with more predictable results over a longer period of time.
Fixed Rate Hybrid Mortgages - A fixed rate hybrid mortgage is a mortgage that starts with an initial period where the interest rate and monthly payment are fixed, followed by the remainder of the loan which the rate and payment may fluctuate with the market.
The types and initial fixed period vary depending on which program you choose.
These types of ARMs can save you a lot in interest in the early years and help you to pay down some additional equity. The most common ARMs are 3/1, 5/1, 7/1 and 10/1. People who plan to relocate or will be moving to a larger home in a few years should seriously consider these hybrid ARMs.
Fixed rate hybrid mortgages have been a very popular loan for the past few years due to their low rates for the their initial fixed periods. However, as the mortgage rates have went up over the past few years, now there is less of a gap difference between the fixed rate hybrid mortgages and the "normal" 30 year fixed rate mortgage. Therefore, may consumers are selecting a 30 year fixed rate mortgage right now and many of the consumers who were in these fixed rate hybrids are selecting to refinance their mortgages into a more stable and traditional 30 year fixed rate loan.
Many Hybrid mortgages are schedule to become adjustable rate mortgages in 2007 and 2008. If your Hybrid mortgage is adjusting, refinancing is one of the best ways to lock in a fixed rate for another 3, 5, 7, 10 or even 30 years.
Benefits of an ARM - An ARM allows you to receive more money at a lower interest rate than a fixed rate loan. If you are planning to move within a few years, you can save money and avoid rising payments.
Adjustable Rate Mortgages start out with a lower payment than fixed rate mortgages, with the possibility of adjusting higher in the future if interest rates rise. This can be beneficial if you want the lower payment now, but expect your salary to increase in the future.
The fixed interest rate portion of an ARM can be as short as the first month of the loan, or be fixed all the way up to the first 10 years of the loan. Depending on how long you are going to be in the property you can choose an ARM . Each ARM also has different guidelines regarding how much the the interest rate can fluxuate at each adjustment, and what the lifetime maximum and minimum interest rates are for the loan. If you think that you are likely to see the adjustment period you should look at these numbers since they will control how quickly your payments can go up or down.
Many investors choose adjustable rate mortgages on houses they will be rennovating for resale. The lower start rate means a lower monthly payment and increased cash flow. Many investors plan to resale the house in a short period of time so rate adjustment isn't an issue.
Adjustable ARM mortgages can be an excellent choice when short term interest rates, such as the Fed Funds Rate, are low and 10 year bond and treasury yields are high. However, under certain market conditions such as those we have experienced through the end of 2006 and well into 2007, the difference in payments between Adjustable ARM and Fixed Rate mortgages diminishes, providing borrowers in ARM mortgages with a strong reason to refinance and lock in a fixed rate at a low payment.
If you only plan on being in your home for a short period of time, then an ARM can be advantageous to you. If you know you will only be in the home for 3-5 years, then you would be better off taking a 5 year ARM. The lower interest rate that it offers will save you hundreds of dollars while in the home.
If you would like to lower your monthly mortgage payment to be able to apply more money in other places of your life an ARM loan may be right for you. An ARM loan should provide you a much better interest rate than a fixed rate loan, therefore giving you a lower payment each month. This in turn will free up some money each month in order for you to use the money where it is needed more at this time.
When considering an ARM loan you should take into consideration your lifestyle and future goals. ARM loans can benefit you with the reduced interest payments because of a lower interest rate which will allow you to invest more money into principal reduction and other valuable investments.
My Community Loan Programs - Loans under the My Community Initiative offer home buyers and home owners fewer eligibility restrictions, and several loan options. These programs are often great for first time homebuyers.
My Community programs offer much more flexible underwriting guidelines, especially in regards to credit score and down payment requirements. The My Community Loan Programs offer 100% and 97% loan to value programs, which means that they have 0 down and 3% down programs available. These programs usually do not require any borrower contributions of money put into the transaction which many other conforming programs will require at least $500 of the borrower's own funds.
MyCommunity mortgage programs are avilable with a variety of options which are designed to address several of the most common obstacles homeowners face when buying a home:
MyCommunity Addresses Common Obstacles to Home Ownership:
- MyCommunity mortgages have options to help minimize or alternatively document Cash for Down Payment and closing costs
- MyCommunity mortgages allow for more flexibility when qualifying for the minimum payment on the new home loan using your income
- MyCommunity mortgages allow borrowers to have lower minimum credit scores than most other home loan programs
2-4 Unit properties are considered under the My Community Program with as little as 3% down. The property must be owner-occupied to qualify.
The My Community Loan Programs also allow for reduced PMI premiums in some cases as well. This reduces your monthly mortgage payment significantly if you qualify.
Refinance Out of An Adjustable With A Fixed - Everywhere you look, economists believe rising interest rates are imminent. According to popular believes, when Adjustable Rate Mortgages (ARM) start to adjust, the new interest rates will be significantly higher, thereby putting unprepared homeowners, who have been accustomed to the low payments of ARMs, at risk of default and eventually foreclosure. If a homeowner with an Adjustable subscribes to this outlook, it is time to refinance out of the ARM and get into a Fixed Rate Mortgage (FRM), while long term rates are still historically low.
Typically, adjustable rate mortgage can adjust from 2-5% on their first adjustment. Check with your mortgage service provider to see how your mortgage will adjust, and when it will adjust.
To really understand you adjustable rate mortgage, you need to know two things, the index and the margin. The index is the adjustable component can be one of several indices. The most common index used is the 6 month LIBOR. Indices move up or down based on numerous economic factors. The margin is the fixed component of the adjustable and does not move. When you adjustable rate mortgage adjusts it's when the index and the libor added together are greater than your current rate.
When you have an adjustable rate mortgage at some point it will adjust. When your loan is a few months away from adjusting, it's a good idea to look into refinancing your loan to a fixed rate. When refinancing to a new loan look into all the options. Going with a 25, 20, or 15 year term might be better option rather than a 30 year if you are able to afford the monthly payment.
If you have an adjustable rate mortgage and you are considering refinancing into a fixed rate to get out of the adjustable you need to consider your short term and long term goals. If you plan on moving from the home within the next few years refinancing into another Adjustable Rate Mortgage (ARM), might be the best option. However, if you have no intention of ever moving then a fixed rate mortgage may be the best option for you. Therefore consider all options before jumping into a new mortgage.
If you want to know the details of how and when your ARM will adjust read through your mortgage Note. The Note is one of the many documents you signed at closing and you should have a copy of. The Note will describe when your rate can adjust, and how the adjustment is calculated, and what the adjustment caps are.
Here in early 2006 financial markets are experiencing a phenomenon known as the inverted yield curve. In a nutshell, that means that interest yields on long term investments like bonds are actually lower than those paid for shorter term ones. What this means for the mortgage market is that long term fixed rate loans are actually priced lower than the ones that have only a short fixed rate period and then convert to an ARM. During periods of inverted yield curves it is a great time for many borrowers to refinance out of their ARM mortgages into long term fixed rate ones.
Along with the security of a fixed interest rate you may also be able to take cash out of your home's equity in the same transaction. It's best to do this at the same time you refinance your adjustable rate mortgage to keep from having to pay closing costs again later. Ask your preferred mortgage professional if your home has grown in value and if a cash-out refinance is right for you.
Many people take adjustable rate mortgages because credit challenges initially prevented them from having a low fixed rate. If you have made all of your mortgage payments on time and your credit score has increased you may be able to refinance into a Fixed Rate Mortgage without increasing your payments.
If you plan to live in your house for the maturity of the loan (30 years) than refinancing out of an ARM to a fixed is a good solution. However, if you plan to move in the next few years another ARM for a fixed period of time will help save money on your monthly payment.
If your ARM Adjustable Rate Mortgage is nearing the end of its fixed period, it is easy to make the argument to refinance into a fixed rate. With rates on adjustable rate mortgages rising rapidly, and often dramatically, the payment on a 30 year fixed rate has never looked so good by comparison. Consider how much your ARM payment will be when the rate adjusts (often by 3, 5 or even 6% more than your introductory start or "teaser" rate). If you're like the grand majority of people who took out an adjustable rate mortgage in the past 5 years, your payments may as much as double. That fixed rate doesn't look so expensive now does it? Even if you are in an Option ARM loan and love the minimum payment option, there are fixed rate mortgages available which cater to your needs, offering both Cash Flow minimum payments and fixed rates for 5, 10 or even 30 years fixed.
If you are considering refinancing out of an ARM, it is a good idea to contact a mortgage loan specialist two months before the rate is set to adjust. This will give him enough time to process the application for your new fixed rate mortgage.
All ARM mortgages have a rate ceiling. This ceiling can be as high as 14%. This means that the interest rate on your mortgage can keep increasing until it hits the ceiling rate. A mortgage with a rate this high would push most home owners into default in a short period of time.
Subprime lending - A type of mortgage lending intended to serve borrowers who do not qualify for prime loans because of credit problems or a limited credit history.
Recent financial events involving sub prime mortgage companies have caused many sub prime lenders to go out of business. The outlook for future sub prime lending is not good. Many programs that once existed will be eliminated and 100% sub prime financing will be harder to find as time goes by.
Subprime is a good solution to purchase an initial house to get into the property. Once you are in the property, you can establish credit and payment history so that you can eventually refinance into a better loan program and get better rates.
The minimum credit score for many subprime lenders is 500. The amount you can borrow in relation to the purchase price - Loan to Value or LTV - (loan amount divided by purchase price) will be about 80% at 500 and go up from there in increments of 20 to 25 points on your score. There are many subprime lenders who will loan 100% with a 580 middle credit score for the primary borrower. So, having a poor credit history does not necessarily mean you have to have a large down payment.
There are lenders that will go below 500 however the price for these loans can get quite expensive. Often the issue becomes an issue of equity rather then price.
With the recent change in trends, many companies are requiring higher credit scores to get high loan to value loans such as 90%, 95%, and 100% financing.
There are 100% purchase programs for people who have a 560 credit score.
Suprime lenders are in general easier to work with and their documentation requirements are usually less.
Many subprime borrowers have bad spending habits. A good way to earn a customer for life is to not only give them the loan they are looking for, but also to offer them helpful advice to raise their credit, and keep it that way, helping them in the longrun, and most likely earning referrals and return business in the process.
These are mortgages offered that allow for credit problems, higher loan to values, higher cash-out amounts, no PMI insurance. They also have looser underwriting guidelines, ignoring charge offs, judgments and collections. Also underwriting turn around times can be much faster.
Sub-prime mortgages were designed for those people who don't fit into the small box that conventional underwriting allows for.
With a Sub-prime mortgage you can secure a loan with credit scores as low as 500. Obtain no income verification loans with scores as low as 600. In many cases you can combine your first and second mortgage, secure a lower rate, avoid private mortgage insurance and save hundreds of dollars per month.
Mortgage brokers are usually the only source for subprime loans, as these loans are almost never offered by neighborhood banks. Most mortgage brokers have a network of mortgage banks that offer loan programs for all sorts of unconventional situations.
These types of loans are available to help borrowers with past credit history obtain mortgage financing. They are usually put in an ARM loan, fixed for a couple years so they can begin with a lower rate. This gives them time to work on their credit and ultimately refinance into a loan with better terms
Subprime lending refers to the extension of credit to persons who are considered to be higher-risk borrowers. In lending parlance, their credit ratings are “B” or “C” rather than “A” or “A-”. Lenders typically price subprime loans to borrowers at rates of interest and points and fees slightly higher than conventional loans.
Subprime lenders are a huge asset to the population of people wanting to purchase homes that don't fall under normal underwriting guidelines. Many people would not be able to purchase their dream home without Brokers providing these types of loans consequently causing fewer sales in the market place and a slower economy. Fill out the online form today and get started on your home search.
Common subprime candidate could possibly be Bankruptcy, Foreclosure, or major Credit Card Debt. Consult a Mortgage Professional so they help you obtain a home with little money down even carrying these difficult charges against your personal history.
First time home buyers may opt for subprime loans when they have little savings. Typically the asset requirements for subprime loans are not as strict as prime loans.
The key to getting a sub-prime loan is disclosure. Although you may have been turned down by a bank for a certain incident in your credit history you need to be honest with your mortgage broker and disclose all the possible occurrences in your credit history that may prevent your loan from closing. Mortgage Brokers are experts in finding the right lender to fit your needs. If anything has been omitted the lender will find it and wonder why a broker did not submit the information. Lenders do not like surprises. So, disclose everything, good or bad, from your credit history and let the Mortgage Broker find the right lender for you.
Subprime is not for just poor credit borrowers. Any time you go over 80% loan to value, you get non prime rates.
Subprime loans are a great tool to get credit challenged borrowers into a home quickly without taking the time to clear up past credit issues. When going into a subprime loan it is often advised to opt for a 2/28 or 3/27 vs a 30 year fixed. A 2/28 or 3/27 loan is fixed for the first 2 to 3 years then becomes an adjustable rate thereafter and offers a lower rate than the 30 year fixed. This 2 to 3 year time period gives you the time to better your situation enabling you to qualify for a conforming loan with lower rates before the rate becomes adjustable.
Subprime lenders are great for getting first time home buyers, with or without good credit, into a home. Subprime lenders also help borrowers with excellent credit that have other problems getting financed like, proving income, loan to value etc.
One solution if you have a low credit score is to purchase the home with a sub-prime lender and then clean up your credit score. Once the bad credit score is improved then refinance the home with a lower rate.
What’s in a name? A new term making its way in the mortgage industry in response to the term sub-prime. That new term is non-prime. Some lenders believe that calling a loan category "sub" is demeaning and turns off prospective credit challenged borrowers. The term non-prime suggests a less derogatory connotation and may be more viable as a marketing term.
Even if your credit score is too low to obtain the mortgage terms you need, your mortgage loan specialist has access to various credit repair tools. Using the credit bureaus' system, your loan specialist can pinpoint exactly which items on your credit profile should be addressed with priority. He will also be able to give you a very accurate estimate of how many points your credit score will increase for each corrected item.
Subprime lending offers many choices today. You can now get a home loan with credit scores in the 400's, have late payments, bankruptcies, foreclosures, but all will reflect the interest rate that you will receive.
Loans to borrowers whose credit is less than perfect will almost always be subprime loans. There are also other circumstances that lead to subprime loans, including high outstanding debt, unproven income, etc. Even borrowers with good credit may receive subprime loans for a variety of reason, including lack of verifiable rental history or liquid cash reserve requirements.
Lenders feel that people who have not handled credit well in the past are at a greater risk of failing to repay their loans. Standard-priced loans are typically made to people with good credit history because their past record proves to lenders that they are at low risk of default.
Especially when borrowing more than 80% of the value of your home, the slightly higher rates which lenders charge borrowers who have less than perfect credit are more than made up for by the savings the borrower receives by not having to pay for Private Mortgage Insurance which would have been required of a borrower with perfect credit.
As a rule, lenders offer subprime rates to customers who have credit scores below 620. If your score is higher than that, you should be able to qualify for a better interest rate. If not, you can either accept the higher rates from lenders, or take time to improve your score by paying off some bills or resolve previous collections and charge off's in a timely manner.
Everyone wants to qualify for loans at the lowest interest rates and with the most favorable conditions, but for those with severely blemished credit reports, the odds of doing so may not be attainable, but there may still be programs available.
Subprime loans that are over 80% typically don't require Mortgage Insurance. The risk of default is already calculated in the rate.
If you do need to borrow over 80% over your home's value, let us know and we will compare your total monthly payments with PMI on a prime or Alt-A program and without private mortgage insurance on a low rate subprime program for people with fair credit.
Subprime lending has gotten so competitive that many homeowners get close to prime rates.
Suprime Lending has been quite competitive for the last several years primarily due to loose money policies and heavy investor activity. Borrowers should always keep in mind that this will not last indefinitely. In fact, many subprime lenders have started tightening their guidelines in the last quarter of 2005. This is due to a softening of the investment climate for these loans. The bottom line is, if you are considering a new mortgage for a purchase or refinance and your credit or other qualifications are less than "prime", you should act quickly.
While a person with a challenged credit history may easily place them into non-conforming and sub prime financing, these are not the only situations sub prime financing is useful for. If a person wanted financing greater than 95% on a single family home, but has great credit, assets, and employment history, they will need to go to alternate sources. Other possible scenarios include if an investor sought to get cash out of a property that exceeds normal guidelines; If employment was not something one could or wanted to document; if one wanted to get cash out of their property using the new appraised value under 6-12 months after buying it; If bank statements were the only feasible way to document income, and so on. The possibilities are literally limitless.
Using a mortgage broker - There are many advantages to using a mortgage broker versus going to your local bank in order to obtain a mortgage for a home purchase or to refinance your home. One advantage of using a mortgage broker is the fact that a mortgage broker can shop your loan around through tens, hundreds and sometimes even thousands of lenders in order to find the right lender to fit your specific needs. Whereas your local bank has their specific guidelines and either you fit into their guidelines or you dont.
Mortgage brokers have access to wholesale loan servicers and programs and are able to pass these wholesale rates to their clients. A bank has basically 1 rate for each program. A broker can beat a bank rate by half a per cent or more consistantly.
You may have heard the marketing pitch "When Banks Compete, You Win". That's literally what happens when you use a well respected mortgage broker. Mortgage brokers enjoy "wholesale" pricing from banks, significantly less expensive in fact than what banks are willing to offer borrowers directly. By creating competition between hundreds of banks, investors, and other lenders across the country, mortgage brokers prevent banks from holding you hostage to their "retail" rates and their idea of what program works for you.
The standard definition of a mortgage broker is: "a person or company that acts as an intermediary who sources mortgages on behalf of individuals or businesses."
The great thing about mortgage brokers is that if your loan is for some reason denied they can switch lenders without consequence. at a local bank if your loan is denied that is generally the end of the transaction, banks most times offer no flexibility.
Findings from a recent study conducted by researchers at George Washington and Oklahoma State Universities discovered that mortgage brokers help their customers save as much as half a percent on their mortgage rates!
Fixed Rate Mortgage (FRM) - "What is a fixed rate mortgage(FRM)? Should I get one?"
The most common type of mortgage program where your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.
Fixed rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "biweekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.)
Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. The most common fixed rate loans are 15 year and 30 year mortgages.
During the early amortization period, a large percentage of the monthly payment is used for paying the interest . As the loan is paid down, more of the monthly payment is applied to principal . A typical 30 year fixed rate mortgage takes 22.5 years of level payments to pay half of the original loan amount.
If a fixed rate mortgage isn't right for you, there are several adjustable rate mortgages available that can work better for some customers in the short term.
One reason that you may choose an adjustable rate mortgage as opposed to a fixed rate mortgage is the length of time you plan on residing in your home. If you know you are planning on staying for a short period of time, it may be wise to take advantage of the lower initial rate.
A popular 30 Year Fixed Rate loan is currently one that features an "interest-only" option for the first 10 years. The program allows you to prepay your loan if you like, with no penalty, or pay only interest for the first 10 years. After the first 10 years, your loan becomes fully amortized to be paid off in the remaining 20 years. Consult your mortgage professional to determine if this program is best for you.
Fixed rate mortgages is a mortgage loan that has a permanent interest rate that will not change for the life of the loan. This is only one type of mortgage and your mortgage professional can help you decide if they mortgage will fit your financial status.
Fixed Rate mortgages are commonly believed to have high minimum payments, however there are fixed rate mortgages available with up to 30 years of fixed interest and "Cash Flow" deferred interest payment options which allow for the payment flexibility once associated exclusively with ARM mortgages. In today's market, a fixed rate cash flow option mortgage may have a lower overall rate than many similar ARM adjustable rate loans. To see if you qualify for a 30 year fixed rate mortgage refinance with a cash flow deferred interest option, contact one of our seasoned financial professionals at (800)515-8443
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