Refinance for Saving

Saturday, July 14, 2007

Preface

Owners of residential or commercial real estate use a similar method to analyze their refinancing decisions. In residential real estate the conventional wisdom applies the "2-2-2 rule": if interest rates have fallen two points below the existing mortgage, if the owner has already paid two years of the mortgage, and if the owner plans to live in the house another two years, then refinancing is feasible. However, this approach ignores the present value of the related cash flows and the effects of the tax deductibility of interest expense and any related points. Therefore, a better analysis of a mortgage refinancing decision should be conducted as follows:
  1. Calculate the present value of the after-tax cash flows of the existing mortgage;
  2. Calculate the present value of the after-tax cash flows of the proposed mortgage;
  3. Compare the outcomes and select the alternative with the lower present value.
The interest rate to be used in steps one and two is the after-tax interest cost of the proposed mortgage. Paying off an existing loan with the proceeds from a new loan, usually of the same size, and using the same property as collateral. In order to decide whether this is worthwhile, the savings in interest must be weighed against the fees associated with refinancing. The difficult part of this calculation is predicting how much the up-front money would be worth when the savings are received.

Posted by karthika at 12:21 AM | | Comments

Mortgage lenders compete

Refinancing is when you apply for a secured loan in order to pay off the another different loan secured against the same assets, property etc. If this original loan had a fixed interest rate mortgage which has declined considerably, then you would like to avail of a new loan at a more favorable interest rate.
When is refinancing an option?
Typically home refinancing is done when you have a mortgage on your home and apply for a second loan to pay off the first one. While taking the decision to go for the home refinancing option, it is important to first determine whether the amount you save on interests balances the amount of fees payable during refinancing.
Lower refinance rate, lower payments
When you purchased your dream home, the financial environment dictated interest rates. While certain factors, like your credit rating and the amount of the down payment that you were able to afford, influenced your interest rate, the single most important factor was the prevailing rates at that moment. However, interest rates fluctuate. When the Federal Reserve enters a rate-cutting period, the prevailing rates may become significantly lower than when you originally purchased your home. By refinancing your mortgage when interest rates are lower, you can exchange a higher interest rate for a lower one, which, in turn, will lower your monthly payment.

Posted by karthika at 12:12 AM | | Comments

Refinance for savings

Smart refinancing can save you thousands
The refinance market has seen spectacular activity during the last several years. With interest rates at their lowest levels in decades, the lure of cheap money has propelled scores of families into action. Cash-out, bill consolidation, and home improvements, all with lower monthly payments, have convinced people to take advantage of the equity that’s lain dormant in their homes. But with interest rates now on the rise, is the boom over? Is it too late to get a great deal refinancing your mortgage? No, it's not too late. But you must be aware of the housing and financial markets in your area. Use the information at your fingertips to become familiar with the refinancing process.

If you're interested in refinancing, we can help. Regardless of your credit history, you owe it to yourself to talk to a mortgage professional that will work to get you the best possible loan at the best available interest rate, in the shortest amount of time. To get started, use the easy form below. You can be absolutely certain that your personal information will be handled safely and securely. Unlike other websites that pass your file on to multiple lenders, we assure that the information you submit to us will remain confidential.

Posted by karthika at 12:07 AM | | Comments

No cash-out vs. cash-out refinancing

No cash-out refinancing occurs when the amount of your new loan doesn't exceed your current mortgage debt (plus points and closing costs). With this type of refinancing, you can typically borrow up to 95 percent of your home's appraised value.

A cash-out refinancing occurs when you borrow more than you owe on your existing mortgage. In this case, you are often limited to borrowing no more than 75 to 80 percent of the appraised value of your property. Any excess proceeds remaining after you've paid off an existing mortgage can be used in any way you see fit, but the best use might be to pay off other outstanding high-interest debt, such as credit card debt. If you're going to explore a cash-out refinancing, do it only if all of the following are true:
  • Your savings make the refinancing worthwhile, even if it wouldn't give you the chance to repay other debt. Your savings are "real," due to a lower interest rate or a shorter loan term, and not due solely to tax factors, since tax laws may change.
  • You're sure that you can afford the new monthly mortgage payment You trust yourself (and your spouse) not to run up the repaid debt again.
  • Even if the rate on a new mortgage would be only slightly lower that what you've got now, refinancing is a good idea if your savings will outweigh the costs of refinancing during the time you own the home.
  • If you're unsure how much longer you might live in a particular locale, use recouping your refinancing costs in five years or less as a good rule of thumb.

Posted by karthika at 12:00 AM | | Comments

Friday, July 13, 2007

Home mortgage refinancing

Refinance involves writing up a new mortgage
This means a couple of facets. The main point to understand is that a lender won't just give you a fresh, better interest rate. You'll be asked to provide earnings proofs and your credit rating will be examined, as with the first loan. This implies, naturally, that there will be charges involved. You'll need to pay closing costs for this loan as you did the first time.

Another significant detail about remortgage is that, if your monetary position has changed, you might not qualify for a mortgage or you may not receive a better interest rate. For instance, if at the time of the initial home loan, you and your spouse were both employed full time, and at the present, one of you has decided to resign, it doesn't matter that you're paying the home loan on time each month; the lender will see the change in earnings.

Naturally, if you refinance home mortgage, you're taking advantage of a reduced rate of interest to save cash. There is, however, more than one method to save money. You can maintain the term of your loan the same as it currently is and decrease the monthly payment amount or you could continue your payment the same and shorten the duration of your home loan. In the event that your monetary situation has gotten better from the time of the first purchase of your property, you might even think about increasing your installment in order to shorten radically the period of the home loan, saving money on interest charges.

Posted by karthika at 11:53 PM | | Comments

Lower mortgage affects tax deductions

A lower mortgage interest rate means you pay less total interest per year, and thus, there is less interest available to deduct from your income for tax purposes. Your income tax liability is likely to increase, and this must be an offset against the savings in mortgage interest. The total impact of a reduced mortgage interest rate depends on factors such as your income, tax bracket, and other deductions. (See Refinancing Your Mortgage Work Sheet) Some refinancing costs may be tax deductible in the year you refinance. However, discount points usually must be spread out over the life of the mortgage to be deducted, even if paid up-front. Check with your local IRS office.

Posted by karthika at 10:59 PM | | Comments

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