Saving Money by Refinancing NASDAQ
What can refinancing a mortgage do for you? Although saving money is the obvious answer, there are a lot of ways to do that, depending on what your personal goals are, and various options for doing so.
Reduce interest rate
Of course, the main reason people refinance a mortgage is to reduce their interest rate. Which only makes sense - a lower interest rate means you're saving money, right? If you're presently paying 6.0 percent, and can refinance at 4.5 percent, why wouldn't you?
Except - it's not quite that simple. Any time you refinance, which is basically taking out a new mortgage, you have to pay an origination fee and other closing costs. These can add up to 3-6 percent of the loan amount. So if you're refinancing a $200,000 mortgage, your new loan balance will likely be from $206,000-$212,000, once the new fees are rolled in.
So for refinancing to save you money, you have to remain in the new mortgage long enough for your savings from the lower interest rate to exceed what you paid to refinance. This typically takes several years - you can figure out exactly how long using a mortgage calculator - but if you sell the home or refinance again before you reach that point, you haven't saved a dime.
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FHA Mortgage Loans with Cash Out Refinancing
Nationwide Mortgage Loans provides low rate FHA loans with Cash Out refinancing options for borrowers looking to raise capital and consolidate ...
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??
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.
If you applied with a big bank you are stuck with their guide lines and they can change them at anytime. What usually happens when you have your loan locked and the guide lines change is you are given a specific time frame that you must close and fund the loan under the old guide lines but that is up to the individual lenders.
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.
You cannot be taxed on a loan. Until you actually sell the house, the value of the home is in question because the market will determine the actual value at sale time. Because of this fact, you cannot have capital gains as long as you own the property.
A refinance does not create a capital gain. Period.
The cash you collect at close merely is a "return of capital" or a return of cash previously invested in the mortgage, and is not includible as income.
Make sure you keep the closing statement on the refinance - and give it to your tax preparer next year. There will be several items to deduct on your next tax return.
Do I need to report the equity "cash out" from mortgage refinance as income?
I do my own taxes every year, but this year I have a question. I refinanced my mortgage in the spring. Had a significant amount of equity and decided to "cash out" some of my equity to help pay off some outstanding debts (car, student loan, credit card balance) and kept some to keep in saving (so it's accessible, if needed). I know the government tries to take a piece of everything, but this is MY money. It's not "wages" -- does that make a difference?
No.
You report equity on your home when you sell it. Then, you subtract your total costs from your home from the selling price to figure your profit on the sale. If you are single and have owned your home for two years or more, the first $250,000 is not taxable income. If you are married, the first $500,000 of profit is not. Any amount above and beyond that amount or if you have not lived in your home as your primary residence for more than two years, all profit is deductible.
The bottom line is that the money you received in the refinancing is additional borrowed money that was lent to you on the security of the original mortgage on your house. Taxable income does not include borrowed money except in the rare case when the debt is forgiven by the lender.
If you still really believe that the money you received in the refinancing is your money, and not borrowed money, try not paying it back to the lender and see what happens.
Refinanced mortgage, if cash is taken out is the rate different?
Eg. I want to refinance a 155K mortgage and 30K equity line into 185K fixed mortgage. If I take out 50K cash too, is the APR on the 50K cash the same as the 185 fixed mortgage?
Yes, a cash out transaction has a higher cost than a rate & term, or purchase.
Also: If that 30k equity line was taken out after the purchase and thus was not used to originally acquire the property, combining those loans into one new one is a cash out transaction even without the extra 50k.
in any event, your rate will be higher because of the cash out unless you at 70% LTV or less
LTV = $185,000/your value
Make sure to price out your loan with your LOCAL banks and mortgage brokers only.
A lot people giving advice on here are also looking to give you a loan (its not advice, its advertising), if they are not local to you and you can’t get to them within 1 hour don’t fall for it. They say they are licensed in all 50 states, what does that mean? Which state do you have to look in first if something goes wrong? KEEP IT LOCAL; DON'T GET RIPPED-OFF BY SOMEONE IN WHO KNOWS WHERE WHICH YOU WOULD HAVE NO DIRECT ACCESS TO.
Remember Buddha's advice:
"Believe nothing, no matter where you read it or who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense." You are the only "expert" you can trust: All brokers, and every other loan officer guru giving advice here with a .com or contact me at the end is "selling" you something (its not advice, its advertising). Don't buy "it."
Are there benefits to refinancing while taking cash out?
I refinance I would reduce my monthly payment by 160$, some of that is removing PMI and some is a better rate. at the same time I was going to take 5K out to payoff CC bills. I figure by doing this I could free up appx. 413$ a month total. I only plan to be in the home for another 2.5 yrs and my closing costs are going to be around $1000.00.
So my current payment of 920 which includes PMI, would be reduced to 757 with a 5000 cash out.
So does it make sense (I'm in about 5000 CC debt at about 250 min. payment a month). Any help is appreciated.
As long as your true closing costs are $1000 it would be beneficial. Were you told that your closing costs are only $1000 or have you seen actual paper work that says they are $1000.
Considering that you only plan to be in that house for another 2.5 years, you would not break even on the costs if the closing costs are more than $4890.
I do not count the savings on your credit card because unless you change your spending habits, you are most likely to continue to use the card, so that is not a guarantee savings.
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.
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Will I receive a 1099 for a cash-out mortgage refinance?
I am refinancing my mortgage to consolidate debt. The current mortgate and HELOC are listed in the mortgage documents, but the other loans, ie credit cards, student loans are not listed and will be paid from the cash I receive at close.
Is the cash-out portion considered income that I will have to pay income tax on?
No, it is not income. It is a loan, which must be repaid. Hence no 1099.