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Refinance Your Mortgage

Most people don’t realize what an important financial step refinancing is. Circumstances change, and mortgages should too. If you’re wondering whether or not you’re a good candidate, here are some of the top reasons why refinancing could be right for you:

  • Your mortgage interest rate is higher than the current market interest rate.
  • You have other debt you need to reduce; such as credit cards & student loans.
  • You’re planning to stay in your home for several years.
  • You want to make home improvements.
  • You want to pay off your mortgage sooner — going from 30 to 15 in your term.
  • You have college tuition to pay.
  • You have an adjustable-rate mortgage and you want to lock in a fixed rate.
  • Your credit score has improved.

Whether you’re looking to get a better interest rate or take equity out of your home for renovations, we’ve put together a step-by-step guide on why you should refinance and how to do it.

Why Refinance?  Let’s Run Through the Top Reasons!

Your life changes and your mortgage should change with it. Whether you’re moving, staying put, have a lot of expenses, or experience a change in finances, making sure your home loan is keeping up with you is of the utmost importance. Your mortgage should always be your financial tool. It should always accomplish more than a roof over your head. 

Here are the most common reasons homeowners choose to refinance:

Your Mortgage Interest Rate Is Higher than the Current Market Interest Rate

Even a small reduction in your interest rate could save you a lot of money in the long run. A refinance can help you ensure you’re getting the lowest interest rate possible. The result? More money in your pocket, for you and your family.

You’re Planning to Stay in Your Home (This Matters)

There’s no better time than right now to evaluate the type of home loan you have. When you know you’re living in your current home for several years, refinancing is a great step toward setting long-term goals.

You Want to Pay Off Your Mortgage Sooner

When rates fall, you could refinance to a lower rate and a shorter term, helping you pay off your mortgage sooner.  You should never just default to a 30-year term.  You have options as aggressive as your finances and your goals.  What does your life look like at the end of your mortgage?

You Have an Adjustable Rate Mortgage and You Want to Lock In a Fixed Rate

If your payments are already fluctuating, it is time for a fixed-rate mortgage.  It will keep your payments steady. Your rate will stay constant in a rising-rate environment. Believe it or not, rates will rise!  It may be time to lock in for long term stability.

You Have Other Debt You Need to Reduce (Most Common!)

Do you have credit card debt, student loans, or any other high-interest debt? Non-Tax Deductible Debt? A cash-out refinance could help you reduce or eliminate your debt. Debt consolidation is one of the most popular reasons people refinance. 

It is all about the cost of money. When mortgage money is this low, you have to take advantage of today’s rates or cost of money.  Why pay a high interest rate, no tax deductibility, and lower your credit score?  Plus, you are paying more monthly.

You Want to Make Home Improvements

Would your home benefit from a new kitchen, new windows or an addition? A cash-out refinance is one of the most affordable ways you can fund home improvements.  Equity is power and the ability to create additional equity is driving long term value regardless of market conditions.  Especially if you are planning to stay long term.

You Have College Tuition to Pay

Refinancing with a cash-out option can help you or your loved ones reach their educational goals as well. Whether you’re returning to school or you’re paying for your child’s college tuition, refinancing could help make it happen. Student loans can be debilitating for your child; there is a better alternative.  This is often the second biggest expense in your lifetime!

Your Credit Score Has Improved

If you’ve worked hard to improve your financial situation by paying off credit accounts that were weighing down your score, it’s time to call your Home Loan Expert. You could qualify for a much lower interest rate if your score has substantially improved.  Credit score matters. If you paid the price to get into the home, it is now time to take advantage of “A” credit interest rates.  Why continue to overpay on your single biggest bill!

House photo

Home prices are up — way up.

According to the Federal Housing Finance Agency, home values have increased by about $100,000 since 2012. Depending on your area, appreciation in homes is even greater!

This makes it a great time for real estate investors to utilize the equity in their rental properties. The cash can be used to:  

  • Buy another rental property
  • Make home improvements to drive higher rents
  • Payoff other real estate debt. Ensure you are running on the lowest possible cost.
  • Prepare cash reserves for the wave of homes that will inevitably come on the market.

With mortgage rates near record lows, it could be time for rental property owners to put their equity to work.

So How Do You Refinance Rental Properties?

Because investment properties are “non-owner-occupied,” there are special rules about refinancing and taking cash out. 

For instance, your credit score needs to be quite good, usually at least 680.

Plus, your cash-out refinance must leave you with at least 25% equity in the rental property and decent cash reserves in your bank account.

In addition, you can only use a conventional loan to complete a cash-out refinance on a rental property.

Instead, you’ll need a loan backed by Fannie Mae or Freddie Mac — the two major agencies that set rules for most mortgages. Don’t necessarily stress about how. Your mortgage professional will sort that for you!

Conventional refinance rules are in place making it possible for many landlords with investment equity to cash out on their rental properties. 

What About Rates?

As a property owner/investor you are in a unique position. You are concerned about cost, terms, and cash flows, for profit, which is different from the average homeowner.

Rates for a cash-out investment property loan tend to be on the high end for mortgage rates. 

Why? Because investment property rates are higher to begin with — about 0.5% to 0.75% above primary residence rates on average. 

Then, if you take cash out when refinancing, rates are usually a little higher still. This is because lenders take on more risk when a homeowner pulls equity out of their property. To be blunt, if something goes wrong with a property owner, they will ensure their primary mortgage is covered, not a rental property.

In the end, if you have been on the fence as a property investor, the rates today as you read this article are setting up to be the cheapest of your lifetime.  In turn, it is opening the door for real estate opportunities.  When money is cheap, the same line of thinking is in place when a property is under-valued.  You take action! 

Refinance Your Mortgage

Home prices are up — way up.

According to the Federal Housing Finance Agency, home values have increased by about $100,000 since 2012, contingent on location.

This makes it a great time for real estate investors to “cash out” the equity in their rental properties. The cash can be used to:  

  • Buy another rental property
  • Make home improvements
  • Pay off other real estate loans
  • Reduce personal debt
  • Stash away emergency cash 

With mortgage rates at record lows, it could be time for rental property owners to put their equity to work.

How to get a cash-out refinance on an investment property

Because investment properties are “non-owner-occupied,” there are special rules about refinancing and taking cash out. 

For instance, your credit score needs to be quite good, usually at least 680 (speak with an advisor to talk about qualifying criteria).

And your cash-out refinance must leave you with at least 25% equity in the rental property and decent cash reserves in your bank account.

In addition, you can only use a conventional loan to complete a cash-out refinance on a rental property.

That means you won’t be able to refinance using any government-backed loans like FHA, VA, or USDA. 

Instead, you’ll need a loan backed by Fannie Mae or Freddie Mac — the two major agencies that set rules for most U.S. mortgages. 

Luckily, conventional refinance rules are fairly lenient, making it possible for many landlords with investment equity to cash out on their rental properties. 

When to use a cash-out refinance on your investment property

Cashing out equity is one of the best ways to profit from your investment property. 

Unused equity in the home may look good on paper, and for many investors, that’s fine. They have cash flow and don’t want to increase their loan balance and payment.

But a cash-out refinance rental property loan can put a good portion of the home’s value to work.

For instance, you might use the cashed out equity to make improvements on a rental property. 

Home improvements can yield a double-return. They increase the home’s value while justifying higher rent. And, tenants feel great about staying in the property long-term.

Perhaps the best use — and highest return — for cash-out funds is to expand a real estate portfolio.

For example, say you have a property worth $250,000 with a loan of $150,000. 

You can get a cash-out loan up to 75% of the current value, netting about $37,000. This money could be used to put 20% down on another rental home worth around $200,000. 

In this way, a cash out investment property loan can help build your real estate portfolio and your earning power through new rental opportunities. 

Cash-out refinance waiting periods

Many home investors buy a run-down property with plans to fix it up. You may plan to fix-and-flip using a cash-out refinance to fund home improvements. 

While this is allowed, waiting periods apply.

You must wait at least six months between the home sale closing and the date you can close on a cash-out refinance. 

The exceptions to this rule are as follows:

  • The property was inherited
  • The home was legally awarded via divorce or other separation order
  • The cash-out refinance qualifies for the delayed financing exception

In addition, homes that have been on the market in the last six months have a lower allowable LTV for cash out refinancing, which maxes out at 70%. 

Rentals properties and the art of the cash out, is not a one-size-fits-all transaction!  It requires a financial expert to guide you through the process to ensure you get the max capabilities for your money!

house photo

Without question, the last few months have reminded us that we need to expect the unexpected.  Whether it’s that you need to ensure cash reserves in the face of income loss, save for college, retirement protection, investments, or if you have plans of being an entrepreneur, we have tools at our disposal.

For the majority of Americans, our wealth is tied directly to our home. Bear in mind that as we’ve made our monthly payments, we got a return on our investment in the form of equity!  Depending on your circumstances, that equity is there for you to use in the form of cash-out refinance. You can use a cash-out refinance as a financial tool.

Right now, your plan should be to build up your emergency fund and/or max contribution to a retirement plan.  Or replenishing lost retirement savings. Investing in a college savings fund.  Or, for those that want to take it a step further, you can invest in the stock market or become a real estate investor. Let’s take a closer look at how you can use a cash-out refinance.

Expect The Unexpected

Financial wellness. We think of wellness often in nutrition, foods, and our bodies.  However, financial wellness is equally as important.  When you plan for the unexpected, you can deal with even the most stressful of events, with solid financial backing.

Remember the equity?  Yes, you can use this equity to ensure you are able to meet unexpected moments.  Now that the Fed has lowered short-term interest rates, what does this mean for you? Mortgage interest rates are lower.  Now that interest rates are lower you can accomplish two goals.  First, with a cash-out refinance, refinance your current mortgage to a lower rate and payment, cashflow!  Second, use that equity (cash-out) to put a plan and budget in place.

Emergency Fund

Regardless of your current circumstances, you must strategize to ensure you have a savings plan.  There is an old saying “too much month and not enough paycheck!” So how in the world do you save for an emergency?  Step one, we spoke about above.  Step two, debt consolidation.  Consider this scenario for a moment: If you have credit cards and student loans that cost you $800 per month in minimum or slightly above minimum payments.  You take those bills, use a cash-out refinance, and cut that in half or more?  Guess what, now you are saving about $400 per month for an emergency fund!

Smart money experts recommend having at least 3 – 6 months of necessary living expenses available.  Cash, not credit cards.  Why?  Simple: as one example, in the event of another emergency, you may not be able to pay your mortgage with a credit card.  There is a reason they say “cash is king.”  While utilizing two methods – staying at a maximum 30% level on credit card usage per month while also putting money away, you are emergency ready!

Building Retirement Funds

FACT and there is no other way to put it: tax-free money is the best money.  In fact, if you are a part of a company that has an employer 401k matching program, then tax-free and free money is the best money!  The trick is, you have to be contributing yourself.

As of 2019, the IRS allows you to contribute up to $19,000 per year to your 401(k). If you’re over 50, you’re allowed to contribute anywhere between $1,000 – $6,000 per year if your plan allows for catch-up contributions. The exact limit for these contributions is based on the type of retirement plan you have.

Are you familiar with the “Rule of 72?”  It is called the Theory of Compounding Interest.  In essence, whatever number you divide into the number 72, is the number of years it will take for your money to double.  12% into 72 means your money doubles every 6 years.  Whatever number, as this is for hypothetical purposes.  In short, retirement in your 401k or IRA allows your money and interest to compound tax-free.  When is the best time to start?  Ask a financial advisor, but the answer is right now.

If you’re behind in building retirement funds, taking cash out of your home is a perfect way to ensure you can retire and retire on time! However, do not rely on a cash-out refinance alone.  A solid plan, by incorporating elements of the above is critical.

College Fund

We have dealt with thousands of people. There has not been a single person yet that has said: “Yes, I want my kids to be crushed with student loans.”  No parent wants that for their children.  It is also not something you can save for in just one year.

The cost of college tuition will not go down. In fact, it is one of the fastest rising costs in the US.  With that, you need to be ahead of the curve.  A cash-out refinance is a perfect solution to begin or fully fund a college education.

These are just a few examples of what a cash-out refinance can do for you and your family.  How much equity do you have?  What is the right mortgage for you?  Will you qualify? Is the time right? Cash-out refinance is a powerful financial tool.  One that many people overlook.  You may have more equity and resources available to you than you even know.  Review this page, see what scenarios you connect with and what makes sense for you.

refinance your mortgage

Refinancing your mortgage can be a pretty sweet deal. You can lower your monthly payment, cut down the amount of time you need to pay, or even pull out cash.

With rates at historic lows, millions of homeowners have already refinanced their mortgages this year. Currently, roughly another 18 million+ borrowers could benefit from a new mortgage, according to real estate data firm Black Knight. But, just like taking out a purchase mortgage, refinancing requires time and money. However, that investment could be a real ROI for your finances.

Here are some questions to determine if you should refinance—and one tempting query you should not ignore:

Ask Yourself: What do I want to accomplish?

Refinancing replaces your current mortgage with a new mortgage that has a new term, a new rate, and a new monthly payment. By refinancing, you can lower your monthly payments, get a shorter loan term or take out cash—but you generally can’t do all three. You’ll need to figure out your goals and what tradeoffs you’re willing to make.  However, do NOT make the assumption that you cannot achieve all three in today’s mortgage environment!

  • Looking for more cash in your monthly budget? You’ll need either the longest possible loan—typically 30-years—or the lowest possible interest rate. Rates tend to be lowest on adjustable-rate mortgages, but you risk seeing a big jump after the initial fixed period, so an ARM only makes sense if you will move in the next few years.  However, with fixed rates being so historically low, considering an ARM is not necessarily an option.

  • Is getting out of debt as soon as possible a priority? Look for a loan with a shorter term than is left on your current mortgage. Monthly payments on a shorter loan are higher since you’re dividing the balance over a shorter period, but you’ll own your home outright sooner, your mortgage rate will be lower and you’ll pay less total interest over time.  However, with rates where they are, the cost of money being so cheap right now, that may not be a concern.

  • Need cash now? With a cash-out refinance, you can pull out the equity you’ve built in your home. You end up with a larger loan balance but can put that money toward paying off higher-interest debt or making renovations. Lenders generally require a borrower to maintain at least 20% equity in the home and will charge a higher interest rate than for a no-cash refi.  However, many Americans are struggling in paying off debt credit card debt. In that case, use the power of your equity to ditch credit cards that are 14% and higher. Especially if you are making just the minimum payment.  

How much can I lower my rate?

Keep in mind that you may be charged a higher rate than lenders are advertising, depending on your credit score and how much equity you currently have in your home. So go through the pre-approval process with at least three lenders to find out what your real rate may be and to make sure you are getting the best deal. Freddie Mac has found that borrowers save an average of $1,500 over the life of the loan by getting an additional rate quote and an average of about $3,000 if they get five quotes.

A popular rule of thumb says: If you can reduce your interest rate by a full percentage point or more, you should refinance. For a 30-year loan with a $400,000 balance, lowering your interest rate from 4% to 3% would reduce your monthly payment by about $220 per month — though it can make sense to refi for less depending on your needs.

It all comes down to the initial question: what are you trying to accomplish?  Not sure? You are not alone. Engage with a professional today to help write a financial roadmap, to uncover and accomplish your goals!

house

As you approach or even in your retirement years, the question that is on your mind is, “Should I pay my mortgage off?”  There are two questions and two answers. First, what is your financial plan?  Second, what is the “cost of money?”

Let’s deal with the first question, what is your financial plan?  First, your financial plan needs to go beyond one year, five years, or even 20 years.  Your plan is to live a long, happy, healthy life. Your plan should reflect that.  With that said:

  • What does your cash flow look like 20 years from today?  
  • What will be the inflationary effect?  
  • What is the Medicare & Medicaid plan?
  • What is your long term health planning?

Too often in retirement people look at the totality of money they have without a cash flow plan beyond today.  It is critical that your financial plan extends out 20 years. 30 is preferable.

Cash Flow 101

Now that you are viewing or at least thinking about cash flow in a whole new light, consider for a moment the following:

  • What would a $350,000 addition look like?  
  • What about a $350,000 subtraction from your cash flow? What would that look like?

We use $350,000 as an average median mortgage balance in the US for people 59 ½ years and older.  Would it have a significant impact if you paid off your mortgage? Although you would have monthly alleviation, your bottom-line would be impacted.

Unique Opportunity in 2020

2020 has been anything but a standard year.  It has taught us to expect the unexpected no matter how long we have lived.  However, in the chaos, one opportunity has emerged especially for you.  The cost of money.

Mortgage rates have never been lower, period. There’s no disputing that.  In fact, as a retiree or soon to be, you can recall getting mortgage interest rates in double digits!  So with the cost of money so low, why not take advantage of it?

By doing a cash out refinance, you have the ability to tap money so cheap, including the tax deductibility that you could put it right in your cash portfolio.  Check out what a payment would be here with this calculator.  Now you see how small the payment would be, put that money back in your cash flow analysis.  Make it stronger?  Is the cash position stronger?  Is the debt position stronger?  Is your tax-free position stronger?  Are there long-term issues now solved due to the low cost of money?  This may be the proper position for you.

Let’s do an analysis together.  Let’s put a specialized financial plan in place.  Your mortgage has done so much for you through the years, it is not done giving.  It can be just as powerful in retirement as it was in your 30s and 40s.

Single family house on pile of money. Concept of real estate.

A home equity installment loan or a line of credit and a cash-out refinance are all ways to access the equity that has accumulated in your home. Let’s break it down so you can determine what makes sense for your financial goals and objectives.

Home equity loans, home equity lines of credit (HELOC), and cash-out refinances are three ways to turn your home’s value/equity into funds you can use to accomplish other goals, like paying for home improvements, consolidating debt, college fund, or starting a business.

You get the cash by borrowing against your home equity, which is the difference between the current value of your home and the amount left to pay on your mortgage.  Certain loan to value restrictions may apply!

Although these loans are similar, they’re not the same. If you already have a mortgage, a home equity loan or a HELOC will be a second payment to make, while a cash-out refinance replaces your current mortgage with a new one — complete with its own term, interest rate, and monthly payment.  In short, it is separate from your current mortgage.

Home equity loans

A home equity loan lets you borrow a lump sum that you then pay back at a fixed rate and a fixed term. It’s technically a second mortgage, so you’ll make payments on it in addition to your regular monthly mortgage payments. However, it gives you peace of mind in a fixed rate and term.

Home equity line of credit (HELOC)

A home equity line of credit is also a second mortgage that requires an additional monthly payment. But instead of getting the cash all at once, you can borrow as needed during the draw period. Similar to a credit card.  Borrow what you need.  You are in control. You then repay what you borrowed plus interest during the repayment period. Unlike home equity loans, HELOCs usually come with an adjustable-rate, so your monthly payments will vary.  We would be happy to explain how the rate is determined.  What is powerful of the line of credit it gives you flexibility in future borrowing. Pay it back and credit becomes available again.

Please bear in mind, in the current environment, home equity products will have a quicker turnaround time, as opposed to a conventional mortgage refinance.

Cash-out refinance

A cash-out refinance replaces your original mortgage with an entirely new loan. The difference between the current loan amount and the new loan amount provides the “cash out.”  This is where you are using your equity!  And though rates for cash-out refinances are generally higher than for rate and term refinances (meaning you are not borrowing more money), your interest rate will still probably be lower than a home equity loan or HELOC rate.  The key to a cash-out refinance is that you are paying debt off! Especially while we are in this season of low rates.  The real advantage of rates today is to pay off debt and keep it paid off, including credit cards. That way you enjoy these real rate advantages long term, without a need to refinance again!

What makes sense?  What are the tax ramifications of one over another? Let’s connect.  Let’s look at your goals, timeframes, and objectives.  Then we will formulate a plan with you by what you are looking to achieve.  Click here to get started.

Future Plans

Without question, the last 2 to 3 months have reminded us that we need to expect the unexpected.  Whether it’s that you need to ensure cash reserves in the face of income loss, save for college, retirement protection, investments, or if you have plans of being an entrepreneur, we have tools at our disposal.

For the majority of Americans, our wealth is tied directly to our home. Bear in mind that as we’ve made our monthly payments, we got a return on our investment in the form of equity!  Depending on your circumstances, that equity is there for you to use in the form of cash-out refinance. You can use a cash-out refinance as a financial tool. Right now, your plan should be to build up your emergency fund and/or max contribution to a retirement plan.  Or replenishing lost retirement savings. Investing in a college savings fund.  Or for those that want to take it a step further, investing in the stock market or becoming a real estate investor. Let’s take a closer look at how you can use a cash-out refinance.

Expect The Unexpected

Financial wellness. We think of wellness often in nutrition, foods, and our bodies.  However, financial wellness is equally as important.  When you plan for the unexpected, you can deal with even the most stressful of events, with solid financial backing.

Remember the equity?  Yes, you can use this equity to ensure you are able to meet unexpected moments.  Now that the Fed has lowered short-term interest rates, what does this mean for you? Mortgage interest rates are lower.  Now that interest rates are lower you can accomplish two goals.  First, with a cash-out refinance, refinance your current mortgage to a lower rate and payment, cashflow!  Second, use that equity (cash-out) to put a plan and budget in place.

Emergency Fund

Regardless of your current circumstances, you must strategize to ensure you have a savings plan.  There is an old saying “too much month and not enough paycheck!” So how in the world do you save for an emergency?  Step one, we spoke about above.  Step two, debt consolidation.  Consider this scenario for a moment: If you have credit cards and student loans that cost you $800 per month in minimum or slightly above minimum payments.  You take those bills, use a cash-out refinance, and cut that in half or more?  Guess what, now you are saving about $400 per month for an emergency fund! 

Smart money experts recommend having at least 3 – 6 months of necessary living expenses available.  Cash, not credit cards.  Why?  Simple: as one example, in the event of another emergency, you can’t pay your mortgage with a credit card.  There is a reason they say “cash is king.”  While utilizing two methods staying at a maximum 30% level on credit card usage per month while also putting money away, you are emergency ready!

Building Retirement Funds

FACT and there is no other way to put it: tax-free money is the best money.  In fact, if you are a part of a company that has an employer 401k matching program, then tax-free and free money is the best money!  The trick is, you have to be contributing yourself.

As of 2019, the IRS allows you to contribute up to $19,000 per year to your 401(k). If you’re over 50, you’re allowed to contribute anywhere between $1,000 – $6,000 per year if your plan allows for catch-up contributions. The exact limit for these contributions is based on the type of retirement plan you have. 

Are you familiar with the “Rule of 72?”  It is called the Theory of Compounding Interest.  In essence, whatever number you divide into the number 72, is the number of years it will take for your money to double.  12% into 72 means your money doubles every 6 years.  Whatever number, as this is for hypothetical purposes.  In short, retirement in your 401k or IRA allows your money and interest to compound tax-free.  When is the best time to start?  Ask a financial advisor, but the answer is right now.

If you’re behind in building retirement funds, taking cash out of your home is a perfect way to ensure you can retire and retire on time! However, do not rely on a cash-out refinance alone.  A solid plan, by incorporating elements of the above is critical.

College Fund

We have dealt with 1000’s and 1000’s of people. There has not been a single person yet that has said; “Yes, I want my kids to be crushed with student loans.”  No parent wants that for their children.  It is also not something you can save for in just one year.

The cost of college tuition will not go down. In fact, it is one of the fastest rising costs in the US.  With that, you need to be ahead of the curve.  A cash-out refinance is a perfect solution to begin or fully fund a college education. 

These are just a few examples of what a cash-out refinance can do for you and your family.  How much equity do you have?  What is the right mortgage for you?  Will you qualify? Is the time right? Cash-out refinance is a powerful financial tool.  One that many people overlook.  You may have more equity and resources available to you than you even know.  Review this page, see what scenarios you connect with and what makes sense for you.

You may have heard of a potentially confusing term called “cash-out refinance” when searching for ways to get a handle on your debt. And yet the concept is fairly straight-forward: A cash-out refi, as it is also called, is when you replace the mortgage on your home with another mortgage that often includes better terms and rates. When you have equity in your home, you will be able to translate that equity into cash that can be used to pay off other debts. This way, you would pay just one bill – your monthly mortgage – instead of many different bills. Let’s take a closer look at this process:

Cash-Out Mortgage

One popular way to reduce debts that carry high-interest rates — like credit cards — is to use your existing real estate investments to your benefit with a cash-out refinance. This type of loan involves refinancing an existing mortgage, with the new mortgage being greater than the original one in order to provide the borrower with the extra funds they need to pay other bills or reduce other debts. This process can actually improve credit scores if you pay off maxed-out credit cards with your refi. And you may even be able to deduct the mortgage interest from your taxes! To get started, learn about the requirements for this type of loan: