Refinance Example (mortgage companies, company, fees, property)

[Shikaka805]

Hi!!!

Can Somebody show simple examples of a refinance and the reason why one would refinance?

THANKS!

[Daddys///M3]

Could you elaborate a little further please? Some specific details (without getting personal) about the scenario and what the ultimate goal is would help.

[TwiloMike]

Talk about a general question! LOL

One may refinance for rate and term: they may be in position to receive a better rate than they were when they first bough.

Another refinance reason may be a cash-out: someone may want to pull out cash for debt consolidation.

Why do you ask?

[Shikaka805]

Originally Posted by TwiloMike

Another refinance reason may be a cash-out: someone may want to pull out cash for debt consolidation.

Why do you ask?

I am just trying to learn as much as possible. I understand refinancing for a lower interest rate, but I am more interested in refinancing for the "Cash out" scenario. Just say we have a property with a good amount of equity in it, it has appreciated, and now we want to take some money out.

[Daddys///M3]

Originally Posted by Shikaka805

I am just trying to learn as much as possible. I understand refinancing for a lower interest rate, but I am more interested in refinancing for the "Cash out" scenario. Just say we have a property with a good amount of equity in it, it has appreciated, and now we want to take some money out.

The scenario will depend on your FICO scores, how you plan on documenting income (full doc, stated income, etc.), how much the home is worth and how much you plan on cashing out. The rate should be a little higher for a cash-out vs. a rate and term refinance.

[pghquest]

Originally Posted by Shikaka805

I am just trying to learn as much as possible. I understand refinancing for a lower interest rate, but I am more interested in refinancing for the "Cash out" scenario. Just say we have a property with a good amount of equity in it, it has appreciated, and now we want to take some money out.

scenario:
Current home value is $250,000
Current mortgage balance is $100,000
You go and refinance the property for $200,000, which pays off the current mortgage of $100,000, and puts about $100,000 in your pocket which you use to buy your hummer and a new porsche..

[Captain Bill]

I suggest you talk to a financial planner before doing that.

[TwiloMike]

Originally Posted by pghquest

scenario:
Current home value is $250,000
Current mortgage balance is $100,000
You go and refinance the property for $200,000, which pays off the current mortgage of $100,000, and puts about $100,000 in your pocket which you use to buy your hummer and a new porsche..

Cashing out to buy quickly depreciating toys is not recommended. Cashing out to consolidate bills and make the consumer debt interest lower and tax deductible, or consolidating medical bills, college education, etc., those are far more favorably treated reasons.

[aasifshah]

to refinance means to change the terms of a loan. basically it means that your aunt will be taking out a new loan. whoever she owes for her house right now will be paid off in full, she will now owe another mortgage company whatever she owed the first mortgage company plus some extra fees. so, let's say a person owes $100,000 on a house at a 7.5% interest rate, and their house payment is $1,200 a month. this person can refinance to get a lower interest rate, let's say a 5.9% rate, and their house payment will go down to 1,000 a month. this person now owes $110,000 on the house, but now is saving $200 a month. get it? that's the idea behind refinancing. thatt's just one of the simple way's to save money by refinancing, there are several different terms and conditions that can apply, but we're trying to keep it simple.

now, your aunt is on what they call an "interest only" loan. what this means is that she has a lower house payment than what she would normally have, but 100% of her payment goes towards interest. let's talk basic loan terms: a person's house note consists of two things...principal and interest. principal is what you actually owe on the house and interest is the interest on the house. under normal conditions, in the first couple of years of paying the mortgage, a small portion goes to the principal and the rest goes to interest. well, in your aunt's case ALL of her payment goes to interest. the way to stay ahead of the game in an interest only loan is to send in a little bit extra money on your payment. any extra that is sent in goes directly towards her principal. so she could actually be paying more towards her principal if she were to pay a little extra each month with an interest only loan, than she would if it were a regular loan.

so basically when she refinances she will just go from an interest only loan to a loan that pays principal and interest. i hope that i wasn't too complicated for you.

you have to look at it in black and white and realize how much money these mortgage companies are making...ok, if you have a mortgage that's $100.000 and hypothetically speaking, you where paying the loan back with 0% interest. all that you will pay back is $100,000, right? ok, that would break down to paying $3,333.33 a year and $277 a month. well, let's see what it's like paying a loan back with interest. so you tack on 10% interest. your payment now is $1000 a month (this is just a nice even number, to make it easier) $1000 a month is actually a pretty reasonable mortgage payment, a little on the cheap side, well, what's $1,000 a month over 30 years? you end up paying $360,000 for a $100,000 house over 30 years!!!!!!! the best way to save money in the long run is to have a shorter term, there is usually 25,20,15, and sometimes 10 year terms available. they may cost more per month, but in the end, they could save you $100's of thousands of dollars!! hope this helps