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Budgeting Interest Rates Mortgages Purchase Refinance

Bring Home the Bacon: The Ins & Outs of a Cash-Out Refinance

Picture This: You come home from a hard day’s work only to find the paint chipping from your walls and high-interest debt chipping away at your bank account. With a sigh, you throw yourself down in your favorite recliner and stare up at the ceiling in defeat—until it hits you. There is a reason a home is considered one of the best investments you can make in your lifetime, and using the roof over your head to put cash in your pocket might be just what you need to get your life back on track.

What Is a Cash-Out Refinance?

When refinancing a mortgage, you replace your existing loan with a new one for the same amount—usually at a lower interest rate to reduce mortgage payments. But with a cash-out refinance, you substitute your current home loan with a new mortgage that is higher than your outstanding loan balance. 

A cash-out refinance makes the most of the equity you have built over time by letting you pocket the difference between the two mortgages in cash. This lump sum opens the door for consolidating high-interest debt, making important purchases, or tackling large-scale home renovation projects.

The Equity of It All

Home equity is the backbone of a cash-out refinance, so let’s look at the numbers. 

Say you purchased a home at $250,000, and its value has risen to $300,000. Having lived in the home for five years, you have managed to pay your mortgage down to $215,000. 

The equity built in your home is simply the difference between your mortgage balance and your home’s value. Which, in this example, is $85,000.

*Though you might be itching to utilize the entire amount, lenders generally only allow you to withdraw a portion of it. Assuming you can only refinance 80% of the home’s value, you take out $17,000 in cash, while $68,000 remains in the home. 

Yays & Nays of a Cash-Out Refinance

Yays:

The advantages of a cash-out refinance often outweigh those of other loan options. Here’s how a cash-out refinance can help your finances thrive:

  • Land a lower interest rate – Generally, a mortgage refinance is an opportunity to get a lower interest rate than you would if you opted for a HELOC (Home Equity Line of Credit) or a home equity loan. This benefit also applies to a cash-out refinance with the added perk of pocketing some cash you might need. 
  • Fund home improvement projects – One of the easiest ways to add value to your home and boost your overall homeowning experience is to start home improvement projects. Renovating your bathroom or giving your kitchen a facelift can increase your home’s appeal and future selling potential. 
  • Consolidate high-interest debts and pay them off – Are you drowning in debt? Using a cash-out refinance to pay off high-interest credit cards (and other debt) can bring you back above water and save you thousands in future interest payments.  
  •  Pay for other expenses – Have a child going off to college soon? You can use your home’s equity to pay for your child’s tuition in the event of student loan interest rates being higher than the rate of your refinanced mortgage. Just want the money to splurge? Have at it! You can use the lump sum you receive from a cash-out refinance to purchase virtually anything.
Nays:

Though beneficial for many homeowners, a cash-out refinance isn’t always the best choice for every situation. Here’s why you might want to consider alternatives:

  • Higher interest rate than expected – Getting a cash-out refinance might seem like a no-brainer, but be sure it is working in your favor. Generally, you want to refinance if the outcome will be a lower interest rate. If a cash-out refinance ends in an interest-rate spike, it might not be the route you want to take. 
  • You can’t avoid closing costs  – Because a cash-out refinance is still a refinance, you have to pay closing costs. Typically, the closing costs are deducted from the cash you are receiving and not out of pocket. It is always a good idea to consider the overall financial benefit of a cash-out refinance. If your potential savings are less than the costs, a cash-out refinance might not make sense for your situation. 
  • Taking a chance with your home – Though a cash-out refinance is yours to use however you choose, always be aware of the risk that comes with using your home as collateral. Be sure to take out no more than the amount you need, and put it toward a project that is guaranteed to benefit you financially.
  • Enabling unhealthy financial habits – As tempting as it may be to use your home as a cash cow, tapping your home’s equity to finance every expense could cause a sense of false security and, ultimately, lead to a resurfacing of the debts you initially paid off.  

Do You Qualify?

To reap the benefits of a cash-out refinance, you need to qualify. Much like getting a mortgage for a new home, if you are considering a cash-out refinance, your qualification for the loan will be based on your credit score, finances, and property. 

While requirements for a cash-out refinance differ between lenders and the type of loan, these are the general criteria: 

  • More than 20% equity in your home 
  • Verification of the home’s value with a new appraisal
  • A minimum credit score of 620
  • Debt-to-income ratio (including the new loan) of 43% or less
  • Employment and income verification

The Big Picture: Is a Cash-Out Refinance Your Best Option?

Whether you want to revamp your basement or knockdown debt, a cash-out refinance can be an attractive option when it comes to meeting your financial goals. Are you still on the fence about a refinance? Reach out to MortgageRight, and we’ll help you down. 

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Credit Down Payment Government Loans Homebuying Homebuying Tips Interest Rates Loans Mortgages Purchase Refinance

Appreciating Our Veterans One VA Loan at a Time

What does it mean to be a Veteran? Being a veteran means fighting for the freedoms of those you have never met. It means having a willingness to give up everything while expecting nothing in return. Being a veteran means volunteering to leave the home you’ve always known, so others won’t have to. It means that you not only understand the concept of courage, but you embody it.

Most of all, being a veteran means taking off the uniform and rebuilding a civilian life when your service is complete. Here at MortgageRight, we understand how difficult it can be to make the transition from protector to private citizen. To show our appreciation for your sacrifice, we provide easy access to a mortgage made just for you—the VA home loan.  

What Is a VA Loan?

Homeownership can become a hassle if you’re not equipped with the financing options that are right for you. For the vast majority of military borrowers, the VA loan program is the most beneficial. These versatile, $0-down payment mortgages have made it possible for more than 24 million service members to achieve their dream of homeownership. 

Despite the program being designed to create a seamless homebuying experience for service members, much of our military population is left in the dark about the program’s unique benefits, and this leads them to choose less favorable loan options.

Who Qualifies? 

To be eligible for a VA loan, you must be a veteran or active service member who has satisfied at least one of these service requirements:

  • Served for 90 consecutive days during wartime 
  • Served for 181 days during peacetime 
  • Served in the National Guard or the Reserves for 6 years

Surviving spouses of service members may also qualify if the service member’s life was lost in the line of duty or if they sustained a service-related disability.

Before you can obtain a VA loan, you will need to present your lender with a copy of your Certificate of Eligibility, which is a document provided by The Department of Veteran’s Affairs as proof of your qualification. To prove previous military service, you must provide a Report of Separation (DD Form 214). If you are on active duty, you will need to provide a Statement of Service instead.

Though The Department of Veteran Affairs does not require a minimum credit score to qualify, it is best to maintain a credit score of 620 or higher to ensure third-party lender requirements are met. 

Backed by Benefits

  • Zero Down Payment

Other loan programs usually require at least a 3% down payment when purchasing a home. However, if you’re looking to buy a home with a VA loan, one of its most advantageous aspects is that the down payment requirement is no longer a burden. 

  • 90% Equity Cash Out

For homeowning service members and veterans, refinancing with a VA loan opens the door for a 90% equity cash out. This option replaces your existing mortgage with a new loan for more than you owe on your current mortgage and allows you to pocket the difference if your home has risen in value. This is especially beneficial if you are looking to save for higher education or retirement, pay off higher-interest debt, or make needed home improvements.

  • Say No to Mortgage Insurance Costs

Unlike other home loans on the market that require mortgage insurance premiums when the borrower has less than 20% equity in their home, VA loans do not come with any mortgage insurance premiums or private mortgage insurance costs—which helps borrowers save even more each month. 

 

Though a VA loan offers savings opportunities at every corner, it does require a VA Funding Fee (that is 2.3% of the amount borrowed with a VA loan, which increases to 3.6% if you are a previous VA loan borrower).

  • The IRRRL Deal

If you have an existing VA-backed home loan, the IRRRL (Interest rate reduction refinance loan) is another added perk. This program is perfect if you want to reduce your current monthly mortgage payments or increase payment stability. 

Let Us Appreciate You

As a Veteran owned and operated lender, MortgageRight always rises to the challenge of helping active and veteran service members navigate the VA-loan landscape and secure the mortgage that meets their unique homebuying needs.

Unsure if the VA loan is right for you? We can help! Get a quote or pre-approval letter or email us at contact@mortgageright.com for any questions.

Happy Military Appreciation Month & Thank You for Your Service!

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Budgeting Homebuying Homebuying Tips Interest Rates Loans Mortgages Purchase Refinance

Take Advantage of Unheard-Of Interest Rates

2020 is shaping up to be an interesting year for the US housing markets. The combination of a global pandemic and an election year has led to historically low-interest rates. Now is a great time to assess your financial situation and develop a plan to take advantage of this unprecedented time in the housing market. And these low-interest rates are no secret; applications to refinance have gone up by 80% to the highest level since the financial crisis of 2009. Even though this may be a stressful time in the stock market with uncertainty about the future, taking advantage of these low-interest rates is a concrete step you can take towards financial security in insecure times. Don’t get anxious, get proactive! We don’t know how long rates will stay this low, so now is the time to act!

 According to the Federal Reserve, the rate for a 30-year fixed mortgage has been about 3.75% in early 2020, and recent events have taken it even lower. That means if your rate is above 4%, you could benefit from refinancing! If you currently have a VA, FHA, or USDA loan, we have even more good news. You don’t have to have an appraisal to refinance to a lower rate.  

Here are some ideas for ways to take advantage of low-interest rates:

  • Refinance your mortgage – lower your payments by thousands of dollars or cut your term in half!
  • Refinance other loans such as student loans 
  • Make large, one-time payments on other debt.
  • Consolidate and pay off your debt – pay off high-interest credit cards to save money.
  • Purchase a new or second home – whether you’ve been looking for a vacation house, an investment property, or an upgrade for your family, now is the time! 
  • Start a business – use your savings as a nest egg to finance your dream company.

Call (205) 776-8401 to speak to any of our Mortgage Loan Experts to discuss your financial goals and find out how we can help you save thousands with a refinance. Or, head on over to our website and click the Apply Now button for an online application. 

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Homebuying Tips Loans Mortgages Refinance

How to Utilize Home Equity to Your Benefit

Building equity is one of the primary benefits of buying a home. Home equity can enable you to finance a renovation, pay off debt, or even launch a small business. When you factor in today’s low interest rates, the possibilities are even more interesting. 

While home equity is a readily available resource for many families, some are afraid to use it because they don’t understand the benefits and consequences.  If you’re unfamiliar with the ins and outs of home equity, don’t worry! In this article, we’ll explain everything you need to know to make an informed decision. 

What Is Home Equity?

Equity is the difference between the remaining balance on your mortgage and your home’s current value. If you purchase a home for $300,000 with a 20% downpayment, you start with $60,000 in home equity. 

How Do You Get Home Equity?

You build home equity over time in two ways. First, your equity increases as you pay down your mortgage principal. For example, if you purchased that $300,000 home five years ago with a 20% down payment and a 5% interest rate, over your first 60 months, you paid about $20,000 toward the principal and $57,000 in interest, leaving a balance of $220,000 on your mortgage. If your home’s value had not changed, you would now have $80,000 in equity. 

But home values do change. This is the second way you build home equity over time. Home values tend to rise based on market demand and other economic factors. Home values may not change a lot each year, but even small changes are significant over time. For example, if your $300,000 home increased in value by just 3% each year, it would be worth more than $347,000 after five years! If you paid your mortgage as described in our first example, you would now have $127,000 in equity!

What Else Can I Do To Increase Home Equity?

The most obvious way to establish more equity in your home is with a large down payment when you purchase, but this isn’t always an option. 

Another strategy for building equity is paying a little more than your minimum mortgage payment each month. By paying just $100 extra per month on the $240,000 example in this post, you would pay off the 30-year mortgage in just 25 years and 7 months. After only 60 months, you would have paid an additional $6,000 on your mortgage, but you would have increased your home equity by $6,800. Why is this number higher than the amount of your additional payments? You are paying down the balance owed, and this means a larger portion of every payment goes to principal rather than interest. 

You can also build equity by renovating. Adding extra space and other improvements can increase your home’s value and curb appeal. This can be complicated if you refinance or take out a second mortgage to pay for the renovations, so let’s take a closer look at options for tapping into your home’s equity. 

How Do You Tap Into Home Equity?

Borrowing money against your home equity can be beneficial, because the interest rates are lower than typical rates on personal loans or credit cards. You earn this lower rate by using your house to secure the loan. 

There are three common options for borrowing against your home’s equity:

  • A home equity loan
  • A home equity line of credit
  • Cash-out refinance 

Home Equity Loans are also known as second mortgages. You can secure a loan for about 85% of the value of your equity in your home. Just like a primary mortgage loan, it is paid back in monthly installments. 

Home Equity Lines of Credit (also known as a HELOCs) are similar to credit cards, but your credit limit is determined by your equity in your home. You make regular payments on the amount you borrow, even if it’s less than the amount you qualify for. 

Cash-Out Refinances involve a new loan with an updated interest rate and loan term. If you take out a new mortgage for more than you owe on your current loan, taxes, and insurance, you can receive a lump sum payment for the difference, and you are free to do anything you like with these funds. This can be especially beneficial during times when interest rates are very low.

Learn more about how and when you should refinance your home on our blog! 

Get the Support You Need

At MortgageRight, we help home buyers and current homeowners like you find the mortgage loan that’s both a perfect fit for your individual needs AND at terrifically low interest rates! You can get the best deal to start building your home equity today, getting you steps closer to the big purchase you’ve been saving for! 

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Loans Mortgages Refinance

Is There a Perfect Time to Refinance?

While historically low interest rates are undoubtedly enticing, refinancing might not have been on your radar. If low interest rates caught your eye, how can you know that this is a perfect time? What if rates drop further? When will they start to rise? 

Many people miss an opportunity to save as they wait on the market to hit the absolute bottom. The truth is, no one can predict what interest rates will be tomorrow, much less than one month from now. 

Why pay your higher rate day after day, gambling on a future dip in rates that may not occur?

When Should You Refinance?

We understand that securing the absolute lowest rates could give you something to brag about when you play tennis or golf with your friends, but that’s not the best way to save money. Every situation is unique, but in general, if your rate is 0.5% to 1% higher than the current market rates, it’s worth your time to investigate your options.  

If your rate is more than 1% higher than the current rate, it is almost certainly time to refinance. If you are 0.5% to 1% higher than the current rate, you might want to contact a mortgage specialist to discuss how long you plan to live in your current house and other factors that affect your decision. 

Factors To Consider When Refinancing

Refinancing a home can be an attractive option, but there are many factors to consider. Here are a few key questions you should ask yourself as you consider this opportunity. 

  • How much could you lower your interest rate?
  • Would you prefer to pay off your mortgage more quickly or lower your monthly payment?
  • Do you have enough equity in your home to secure a loan that doesn’t require mortgage insurance? 
  • Do you need to convert an adjustable-rate mortgage (ARM) to a fixed-rate mortgage while rates are low?
  • Do you want to access some of your home equity with a cash-out refinance to pay for a large purchase or consolidate debt? 

If the answer to any of these questions is “yes,” then refinancing is something you may want to consider. 

The Bottom Line

Refinancing your home is well worth your consideration if it could decrease your mortgage payment, loan term, or help build equity faster. Right now, mortgage rates are at one of their lowest points in history. They can’t get much lower, and it’s only a matter of time before they climb back up! 
If you want to take the next step in refinancing your home, MortgageRight will help you find the right loan for your needs. Give us a call at 205-776-8401 or email us at contact@mortgageright.com.

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Loans Mortgages Refinance

Making the Most of Refinancing Your Home

It seems like a pain to go through the mortgage process AGAIN just a few years after purchasing your home. Loan applications, appraisals, closings…why bother if your current mortgage payments already fit comfortably into your budget? Are the savings and benefits worth it? Even if you’re not considering a move, the time could be right to refinance your home. 

Do you have a child in college? Are you interested in starting a business? Refinancing your home can be a strategic way to dip into your own personal piggy bank to help in many different life situations.

What is refinancing?

“Refinancing” is getting a new mortgage to replace your original one. Instead of throwing out the original mortgage, the first loan is paid off when the new loan is created. Refinancing can improve the interest rate and term of the loan. 

When is refinancing a good idea?

Like many things, it’s a numbers’ game. There are two metrics to weigh as you consider when to refinance: your home’s value relative to the amount owed on your current mortgage and current interest rates. Over time, the value of your home should increase, and there could be more incentives to refinance. You can’t control the fluctuations in interest rates, but you can monitor them to find strategic opportunities. When your home’s value is up and the interest rates are down, you will get the maximum benefit from refinancing your home. 

We’ve had historically low-interest rates for a long time, and it’s difficult to tell when they might start to creep back up. With the current state of the economy, we recommend making refinancing decisions based on your personal financial situation rather than holding out for a possible future rate improvement. 

Why is refinancing beneficial?

Apart from just lowering your monthly mortgage payments, refinancing gives you options to utilize the equity you’ve built on your home. You can utilize the cash equity built up in your home to pay off credit card debt, a car loan, a student loan, or even start a business, buy a second home or an investment property. 

Decreasing your interest rate today by even one percentage point might make a bigger difference than you think. A 1% improvement could save you more than $20,000 per $100,000 financed over the term of a 30-year mortgage. 

Should I refinance?

MortgageRight can help explore all the different possibilities that open up to you when you refinance your home. Our trained mortgage specialists can help you explore the benefits of refinancing based on your situation to determine if now is the best time for you to take action.