Is a Cash-In Refinance a Good Idea? NASDAQ
Does it make sense to pay down your mortgage in order to be able to refinance at today's super-low rates? Is this a good strategy for homeowners who are underwater on their mortgages?
A lot of homeowners seem to think so. According to Freddie Mac, over one-quarter of all mortgages refinanced in the second quarter of 2011 were "cash-in" refinances, where borrowers paid down a significant part of their mortgage balance as part of the transaction.
At first glance, a cash-in refinance is a fairly straightforward solution for borrowers who'd like to refinance, but can't because declining property values have left them owing more on their mortgage than their property is worth. But it tends to be expensive. To get back into positive equity, underwater homeowners may have to write a check for several tens of thousands of dollars, if not more.
Generally, you don't want to do a cash-in refinance unless you're certain it's the best use of your money. Here's some of the main things to consider when deciding whether a cash-in refinance makes sense for you.
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Will I be able to get cash back with an auto refinance?
I just purchased a vehicle $15,000 bellow its Kelly blue book value. With an auto refinance will I be able to access that cash or get any cash back? Also any information on companies that has this cash back option will be helpful. Thank you!
Auto finance is what I do for a living and the answer is yes you can access the equity in your vehicle by refinancing it.
One of the things car loans are based on is the loan to value, if your $15,000.00 back of Kelly Blue Book you should have no problem getting at least $10,000.00.
The reason I say this is banks use N.A.D.A. not Kelly and they go by loan or wholesale value not retail.
The best time to have done this was when you bought the vehicle, but you should still be able to do it.
I have 65,000 left on my 30yr mortgage,but have no savings i can get back 25,000 in a refinance take cash out?
i would have a 90,000 mortgage with the same payment as now.im going to sell in a couple years anyways.if I refinance I get back 25,000 in cash.My house was appraised for 120,000.good idea not not?My payment would be the same.
When you refinance with cash back, how does that affect your taxes? Do you claim it as income?
It's not income. You traded a loan (a future promise to pay) for cash today. That's NOT income until you Sell the house. And even then, it may not be taxable income.
a "return of capital" or a return of the cash you have previously invested.
Returns of capital are never includible as income.
When you do refinance, however, make sure you claim the deductions for
points (Schedule A, Mortgage Interest). Real Estate Taxes and Intangible Taxes are also available to claim as deductions from the closing. Most
other items on a close relate to basis, and are not deductible.
Typically, how long must you own a home to do a cash-out refinance?
I am planning on buying a home that needs a lot of work. I also have some credit card debt I would like to get rid of. I have the 10% to put down and have been pre-approved for a mortgage.
If I buy this home, can I then turn around and do a cash-out refinance for, lets say, 80%-90% of appraisal value? Would I have to wait a certain period before a bank would do this?
Once you get the house back into good shape, and the value is back above where you financed it in the first place you can get it reappraised and start over on your new loan for the unit. Or get a second mortgage.. Time factor is not a big deal,, the equity in home is the deciding factor.
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If you obtained a cash out refinance what happens when it ends up in foreclosure?
Example: You refinance with $200,000 cash out & house appraises at $650,000. The loan is $520,000. Value of property drops to $450K so you can't refi; the cash has been spent & now it is going into foreclosure. What will bank do?
They go after your other assets, accounts, property and wages until you have repaid all of the money they gave you, interest on it and the legal expense of getting their funds returned to them.
Eventually you will pay them back.
It'll foreclose. It now owns the property, currently worth about $450,000.
It'll determine the value of the property through a BPO (broker's price opinion). It will then list the home with a Realtor, probably for a price around the BPO. Assuming your estimate is correct, the BPO would be around $450,000. Then, on a regular schedule, it'll drop the price of the home. For example, perhaps every 45 days it'll drop the price by $10,000. At some point, someone will come along and buy it.
As for the owner of the home, the foreclosure transfers ownership of the home. And it's a black mark on the owner's credit. Once the foreclosure occurs, the owner no longer has a right to live there, and must move.
From your point of view, you sold the house back to the bank for $450K and have cancelled debt income of $70K. You calculate your gain/loss on the property using the $450K number. You can have taxable income from both.
Can I put all my Cash-out refinance's interests on Schedule E as mortgage interests?
I'm a 'passive' investor and own rental property A & B.
If I do a cash-out refinance on rental property A, can I write all my interests as mortgage interests to offset my rental income from propety A? Is there a limit? And if property A ends up as a loss, can I use it offset the passive income from property B? Is there a limit?
there are multiple limits of various kinds.
1st. if you cash out more from property A than your remaining equity in property A [original down payment or basis less accumulated depreciation plus capitalized items during your holding period less salvage received or loss deducted], the excess is taxable income in the year received.
Depending on depreciation recapture provisions, some or all of this may be ordinary income.
2nd. yes, all the interest paid on debts on Property A would go on Schedule E.
3rd. yes, the net loss on Property A [including depreciation] would offset the net income on Property B.
4th yes, there is a limit on losses from passive activites -- and a separate schedule on which to figure it out [see forms at irs.gov -- Limitation on Passive Activity Losses -- I think that's what it is called].
5th. points, costs, and fees paid to refi the debt on Property A probably have to be capitalized and amortized over the life of the new loan. [The loan statements will include them in the capital paid figure]. The similar remaining balance of points, fees, and costs that you are currently amortizing for the current loan on Property A are probably deductible as financing expense.
Atm, that's all I can think of...
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And that's all if you can find a cash-out refi of an investor property in the present loan market. My offhand guess is that you'll not be allowed to lower the equity to appraised value ratio beyond 20% at least -- possibly more depending on market. AND, I'll bet the lender will want an unconditional personal guarantee of the loan as well.
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Are you sure you don't want to hire an accountant to figure out this stuff??
How Soon Can I Take Out a Home Equity Loan or Refinance After a Cash Purchase of a Foreclosure?
The house is only 10k. So if I pay 10k cash, how fast can I do a home equity loan for that 10k? I need to make repairs as it is a foreclosure in poor condition. Can I do a refinance loan and get more than I even paid for it if it appraises higher than 10k, which it will? Thanks for any help
It all depends on the difference in the value of the place and the amount owed on the loan - that is what's considered your equity. Many banks will only loan up to about 80% of the equity, but a few go higher. For example, lets say you owe $50,000, but the place is worth $60,000, then you have $10,000 in equity. Take 80% of that and you have about $8,000 you could loan against.
I found a great article about it on
www.payoffmyloansnow.com
Can you still refinance with cash out if your home has been off the market more then 3 months. ?
I have a balloon payment coming up in Sept 09 and would like to refinance with cash out. The bank told me cash out at 80% of LTV and at least 3 months off the market. Now they are changing there tune. They said that since the house has not been off the market for more then 6 months they have to drop my LTV to 70% are they legally aloud to change there tune after I have payed my lock in rate fees and signed paper work.
If you read your agreement, you will undoubtedly see that they have included language along the lines of "the bank has the right to change these (the refinance rules) conditions from time to time with proper notice."
In effect, what you signed gave you the right to refinance under certain conditions, but those conditions can change somewhat.
Will I be taxed Capital Gains if I receive cash-out from the refinance of my primary residence?
My primary residence is in Fl, and my wife and I have lived in it for over 2 years. I plan to refinance later this year and cash-out about 100k in order to remodel my home. Will I be responsible for capital gains on the cash-out?
No. Equity removed from a home in a cashout transaction is never taxed.
However, if when you go to sell the home, if you are then subject to capital gains, hopefully you haven't already spent it. But that's unlikely to be an issue, as the first $500,000 in gains is tax-free for a married couple who have lived in the home as their primary residence for at least 2 of the prior 5 years.
And considering that most of that money will actually go to capital improvements to the home, you'll be increasing the cost basis of the home, limiting the actual gain when you do sell. Just be sure to keep your records of the improvements until you sell! I don't know what counts as a capital improvement and what doesn't, but when the time comes, a CPA will be able to answer those questions for you.
Where can I get an auto refinance loan that will give me extra cash over and above the payoff for my car?
I want to do some extra work on my car to enhance it's value and condition, rather than just trade up. I like my car and I know what I've got into it already. I don't want to get another used car--something that I have to start all over learning about, in terms of its mechanical needs. I just want to make my current car better, with the extra cash imbedded in the refinance.
you can get cash above the payoff for your car if you have enough equity to meet the LTV guidelines for the bank, and still have room. Check with all the local banks to see what their guidelines are, and what they would lend on your car.