Progressive Lending Solutions, Inc.
How does refinancing save homeowners money
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Published Date 10/24/2018
The first type, rate-and-term, replaces your existing loan with one that has a better rate and/or terms. You might replace an ARM or balloon loan with a fixed-rate loan, for example. Or you may decide to lower your rate AND shorten your term. Some borrowers have been able to refinance from a 30-year loan into a 15 or 20-year loan, reducing the term, without appreciably raising their payments.
A borrower does not receive any significant amount of cash in a rate-and-term refinance; lenders generally consider that any cash proceeds above $2,000 pushes the loan into a cash-out category.
There are always certain costs involved in any mortgage transaction; there will always be fees for title, escrow, underwriting and document preparation, for example. Borrowers can add these fees to their new loan so as to avoid having to pay them in cash. Financing these items is not considered cash-out.
When you are deciding whether to do a rate-and-term refinance, you should evaluate it in two primary ways: first, how long will it take to recover the cost of doing the loan? For example, if the closing costs amount to $3,000 and the reduction in rate gives a saving of $1,500 per year in the first year, it will take approximately two years to "break even." For most people, this time frame is more than satisfactory, but you should make your own decision. The second criterion is net savings over some time period, say five years, ten years or more.
Homeowners with adjustable rate mortgages (ARMs) may decide to refinance into a fixed rate loan, even though their rate may initially be higher, they might feel more secure knowing that their rate will never change. This is more of a defensive strategy to guard against the possibility of a higher rate in the future, but it may not "save money."
The other type of refinance, a "cash-out," is one where the borrower receives cash of more than $2,000 at closing. This is accomplished by getting a new loan that is larger than the balance of the old one plus closing costs. Borrowers can use that money for anything. Some homeowners have used cash-out refinances to pay off consumer debt, like car loans, student loans, and credit cards. Using home equity to pay off credit cards can drop the payment dramatically! But paying down installment loans can create a false economy. A $30,000 car loan with an interest rate of 6% will have a payment of $500, but paying off that loan with the proceeds of a home refinance will effectively drop the payment to $150—but does it really make sense to finance a car for 30 years?
Hope this is useful.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
DISCLAIMER: Any interest rates and annual percentage rates (APRs) contained in this publication are based on current market conditions and are for informational purposes only.
Unlocked rates and APRs are subject to change without notice and may have pricing add-ons related to property type, loan amount, loan-to-value, credit score and other variables—call for
details. Progressive Lending Solutions, Inc. Licensed in MN and WI.
Progressive Lending Solutions, Inc
Corporate
NMLS: 107620
Progressive Lending Solutions, Inc.
Corporate: 2277 Hwy 36 W, Suite 304, Roseville MN
Company NMLS: 107620
Office: 866-680-2840
Cell: 612-940-5230
Email: info@progressivels.com
Progressive Lending Solutions, Inc
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Corporate
NMLS: 107620
Cell: 612-940-5230
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