Cash in Refinance. Nothin' New. Nothin' Revolutionary.
By Gene Mundt, Professional Mortgage Banker - Chicago Bancorp
The concept of bringing "Cash In" to Closings of a Refinance is nothing new or revolutionary ... but it HAS become more common these days.
Home Values have declined in most U.S. housing market regions. Yields on stocks, bonds, and other investments are dwindling ... and Mortgage Rates are hovering at, or under 5%. (This last statement should be making those Americans looking to Buy a Home or Refinance salivate).
If any of the aforementioned scenarios apply to you as a Homeowner, you might presently be pondering "Cashing In" those investments that are yielding you a miserable rate of return and then utilizing those dollars to "Buy Down" your Mortgage Interest Rate, 1% or more.
This is a plan of action you might want to consider, especially if "Buying Down" the Interest Rate is the deciding factor in making a Refinance of your Mortgage possible.
A "Buy Down" can prove beneficial to a homeowner in the following ways:
- By reducing the Mortgage Balance to qualify at a certain LTV (Loan-to-Value )
- To qualify for your Mortgage at a lower DTI (Debt-to-Income Ratio)
- To eliminate costly Mortgage Insurance, while also lowering the Interest Rate
- To reduce the Principal Balance of your Mortgage in conjunction with reducing the Loan Term (thusly keeping the new monthly Mortgage Payment comparable to the previous mortgage payment, but greatly reducing long-term interest costs)
- To fit into certain LTV (Loan-to-Value) "windows" on first and second (Combined LTV) Mortgage scenarios.
There is no across-the-board right answer to these above-mentioned scenarios. As I've written many times previously in my posts, today's Mortgage Processing and Mortgage Loan is more personalized than ever before.
As each borrower's set of financial situations are different ... each situation must be judged on its own merit. Each decision must be based on the financial scenario and standing of the individual homeowner in question.
My suggestion or recommendation would be for the homeowner to consult their Income Tax Advisor and their trusted Mortgage Professional both, prior to proceeding with this type of Refinance.
My fear for any Homeowner with capital to invest is this ... How liquid is their money paid into reducing their mortgage? How liquid is it versus having the money in a Money Market Account? Versus a Certificate of Deposit? Versus a Bond Fund, or etc.?
For LONG TERM FINANCIAL PLANNING, I personally would bet on the Mortgage Reduction course of action being the favorable one in most cases. But each homeowner must consider their own level of comfort when making this decision. As with any financial decision, their is an element of risk ... and homeowners should be made aware of that fact and discuss their options with their financial professionals before making a final decision.
All of the above is great "food for thought" ... and at decision time, ultimately the Homeowner themself may have the only "right" answer regarding how to proceed.
* If YOU are seeking information and answers as to whether a Refinance might be possible for your financial scenario and property, please contact me.
Together we will analyze your current Mortgage and Financial situation ... and then move forward with a course of action that will benefit your personal and financial needs best. I look forward to speaking with you soon!