ATM's charge high fees when you withdraw your OWN money from a competing bank's machine. This fee ranges from $2.00 to as high as $10 if you ever needed to get some cash from a Casino in Atlantic City. It is absolutely insane that we pay these high fees in order to access our own cash, but I have to tell you, it is a lot cheaper than another method many people use...Refinancing!
In the past 5 years, many homeowners have used their house like their own personal ATM machine. Homeowner wants to put on new siding....Refinance! Homeowner wants to put on an addition, paint the house, take the kids on a vacation, shopping spree, new car, vacation house, new lawn mower, new basketball hoop, college education...Refinance!
I know this sounds strange coming from a mortgage professional, and I do make my living through refinances, BUT it is not always the best solution. Many different variables go into a refinance along with fees. Deciding to take the plunge needs proper planning, but more importantly, it takes a pad, a pencil, a calculator, and an honest mortgage professional to guide you along the way.
Many sub-prime loans were taken out with some interesting options and descriptions in order to create a lower payment. Many of these refinances were done based on the notion that the value would increase forever, and more equity would be available later. Some really paid the price because of the product chosen. Here are just a few examples of these exotic products:
Interest Only loan - homeowners pay only the interest that accrues on the loan. They are not required to pay any of the principal. This offered homeowners a lower payment on which they could qualify.
40 and 50 year terms - in order to reduce the monthly expense and qualify for a lower payment, many borrowers were offered longer terms. By stretching out the loan to 40 or 50 years, payments on loans would decrease several hundreds of dollars, allowing homeowners to buy or refinance more house.
Negative Amortization Loans - The "Neg -AM" loan actually allowed borrowers to pay less than the interest each month. The loan balance on this product would increase each month because homeowners were not required to pay the interest accruing on the home. Many homeowners were losing hundreds of dollars in interest each month.
The "Fixed - Adjustable" Loan - this is a term created by sub-prime lenders that created the illusion borrowers were in a fixed product. The "fixed" period lasted for 1, 2, or 3 years, then the loan would adjust. Many times these loans were sold with high margins which would increase interest rates by 2 or 3 percent. Often times these are considered "teaser rates". (This is a term I have heard from many homeowners trying to refinance in the last year. In my opinion, it was a tactic to trick borrowers into specific loans)
Most homeowners in the products above have already come to realize the product was not what they were expecting, and some are finding out the hard way that a drop from a 50 year term to a 30 year term, regardless of the rate, makes a pretty significant dent in their monthly budget.
I just wonder how many people in the loans described above actually took the loan not to lower their rates or consolidate debts, but to use the money for something more enjoyable. I can tell you from experience, many just refied because they were accustomed to a lifestyle and needed some cash to continue. Now they are paying the price.
When it comes to a refinance, first ask yourself the question..."what am I trying to do?" Do you need cash for a necessity, or are you trying to keep up with the Jones? Can you save for the next several months to get what you want? Do you have money in a rainy day fund that you can use? What is in your checking or savings account?
Often times, a Refinance is a Great Option and can accomplish many goals! Decreasing your rate, shortening your loan term, consolidating debts, getting out of an adjustable and into a fixed are all excellent reasons to refinance. You still need to run the numbers and make sure it makes sense. Talk with a mortgage professional that is looking out for your best interest, and will tell you if a refinance is not the best option.
To find out more about refinance opportunities and whether a refinance makes sense for you, check out our website today at www.tmmortgagegroup.com or call 1-800-696-1424.
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