Four Mortgage Refinancing Questions
by Linda in Baltimore, Cindy in Honolulu, S. in Harmm, Darcel in Dallas
Ask Kate answers four mortgage refinancing questions: Linda asks if paying down their mortgage balance by $30,000 to lower their payments is advisable. Cindy's banker wants to collateralize her rental apartment in addition to her home. Darcel wants to refinance with cash-out and add her significant other to the mortgage while S. wants to refinance without his new spouse.
Question 1: Refinance My Mortgage With or Without Down Payment? By Linda from Baltimore
Kate, We have a interest only mortgage at 6.375% and would like to refinance for a lower rate for 30 year fixed. But my husband wants to put a large sum down ($30,000.00) to lower the monthly payment.
My question is: Is that advisable and will we ever re-coupe our money?
Ask Kate answers: Refinance My Mortgage With or Without Down Payment
Because I am not a financial counselor, I cannot determine if this is advisable. But here is what I CAN do!
I'll show you one way of comparing numbers. But you will have to decide if your refi is worth the cost of giving up $30,000 of your savings! Follow these steps:
1. Calculate your proposed house payment at your current loan balance for 30 years using an estimated 3.75%. We'll call this "Payment A".
Use my mortgage payment calculator
for this exercise.
2. Re-calculate the house payment after reducing the principal by $30,000. This becomes "Payment B".
3. Subtract the lesser "Payment B" from greater "Payment A" to arrive at the difference.
4. Now divide $30,000 by the difference in house payments. This is the number of months it will take you to to pay yourself back the $30,000 you turned over to your lender to reduce your mortgage balance.
One last thing. There are many ways of comparing refinances. Consult your CPA for tax consequences and other financial options.
Question 2: Refinancing With Additional Collateral? By Cindy from Honolulu, HI
Dear Kate, My current mortgage lender has offered to refinance my primary residence at a better rate provided that, in addition to my house as collateral, I also put up my rental apartment as collateral against the loan. Is this a good move for me?
Ask Kate answers: Refinancing With Additional Collateral
I'm assuming your home does not appraise high enough to support your loan request.
This must be why your banker wants the additional collateral of your investment property. But first, you need several crucial answers before making a decision.
1. By how much will your lender better your mortgage rate in return for additional collateral?
2. What will the mortgage refinancing costs
3. How much will your monthly house payments decrease?
You need concrete answers to your questions in writing, signed and dated. Read the fine print carefully!
Then consider if refinancing is worth the risk of losing your rental apartment, in addition to your primary residence, should a catastrophic situation limit your ability to make house payments. If you are not comfortable with that thought, you may have your answer!
As I told Linda, seek the advice of a capable financial consultant before deciding to pledge additional collateral.
Learn about financing options not limited by appraised values at Special Edition Making Home Affordable Options
Question 3: Refinancing Without Spouse? By S. from Harmm
I own my home and my home is in my name only on title. I just got married. Do I have to include my spouse on the application when I refinance? We both have great credit but want to do this without my spouse since property will remain in my name only.
Ask Kate answers: Refinancing Without Spouse
Several states in the US have distinct community property laws governing the division of property acquired during a marriage. Even among the community property states, the statutes vary.
To be on the safe side, I recommend consulting an attorney to learn if refinancing could alter your ownership status, even though you got married after buying the home.
Secondly, it's possible that your lender's home state may influence their requirements for how you hold title. This is a question to ask the mortgage originator before you make loan application.
For example, I once needed to convince a California-based lender to quit imposing their state's community property statutes since my borrower did not reside in the Golden State.
Besides contacting an attorney for upfront help, another source of information is your local title company. They are often well-versed in their state laws and many times are supported by a staff attorney.
Learn about title insurance at How to Get a Mortgage, Part III
Question 4: Refinance With Cash Out and Co Borrower? By Darcel from Dallas, TX
Kate, I have lived in my house since December 2000. This past October I allowed my significant other to move in and he has assumed the monthly mortgage payments.
I would like to refinance to add his name on the mortgage. But I definitely want to get my equity out as I purchased and maintained the house as a single for 11 years. Please advise. Thank you!
Ask Kate answers: Refinance With Cash Out and Co Borrower
Sounds as if you're in the market for cash-out refinancing. But you should know most lenders will require a certain amount of equity, as determined by a property appraisal, before they will put money in the pocket of homeowners.
For example, if your lender requires 25% equity and your home appraises for $200,000, your loan amount would be limited to $160,000.
But how much cash would you get? The cash-out will equal the difference between what you owe and your new loan amount (minus the cost of refinancing).
In addition to the appraised value, your credit, income, and debt ratios would also need to meet qualifying guidelines for this particular loan amount.
Speaking of qualifying, your significant other will also be required to participate in the mortgage process.
Go here for more details: Ask Kate Explains Refinancing with Cash-Out
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