Replacing the current mortgage with some other kind of financing thus securing the same asset.

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MORTGAGE REFINACING

Replacing the current

mortgage with some other

kind of financing thus

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TYPES OF REFINANCING

S O

C

G

1. Standard fixed mortgage with better terms.g g a. Lower rate is offered

b. Equity in home has increased

positioning the home owner for better interest rate. refinancing mortgage so only the bottom value of

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Types of Refinancing Continued

II No closing Cost Refinancesg

Reduces upfront fees but the interest rate offered is

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Types of Refinancing Continued

III. Cash out loan-refinancing a loan or series of loan debts g

Assists the borrower in paying off high-interest debt, e.g. credit cards, with lower interest rate financing

Net savings can be applied toward debt or other purposes

purposes

Non-tax deductible debt can be transformed to

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Know Your Client

Evaluate your clients financial and personal situation.

Understand physical, behavioral and psychological signs of distress.

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Information you need to help your

client decide if they should

refinance.

1. Why is your client refinancing?

2. What type of refinancing are they considering? 3. What are other alternatives for your client?

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Know your client continued

Know your client continued…

5. Is this a scare tactic from a debt collector? 6. Did they attend a get rich seminar?

7. Did their current mortgage company initiate this refinancing idea?

refinancing idea?

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PRO’S OF

MORTGAGE REFINACING

I. Lower Monthly Payments

Reduce interest costs-refinance to a lower rate. Money saved can be used to pay down principal of loan further reducing

can be used to pay down principal of loan, further reducing number of payments.

Longer term loan-reduce amount of payment Longer term loan reduce amount of payment

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Pro’s continued

Pro s continued

II. Reduce Risk

From Adjustable Rate Loan to Fixed

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Pro’s continued

Pro s continued

III Liquidate equity to pay off other debtq q y p y

a. Cash out refinancing

Assist borrower in paying off high-interest debt such as credit cards with lower interest debt.

Net savings can also help pay down mortgage debt

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CON’S OF

MORTGAGE REFINACING

I Closing Cost Feesg

a. Fees may out weigh savings expected from refinancing. a. Fees may out weigh savings expected from refinancing. Clients generally are looking for the bottom line or what

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Con’s Continued

Con s Continued

II

Greater Risk

II

Greater Risk

Even if the payment is lowered, the total loan may result p y y in larger total interest costs over the life of the loan

B d di h bit ti ft fi i

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Con’s Continued

Con s Continued

Example:

• Original mortgage $100,000 at 7% interest.

• Remaining life on the loan is 26 years (has made payments for 4 years of $665.30).g y ( p y y $ )

• Total interest paid for 4 years - $27,409.

• Loan balance at end of 4 years $95,475

• If held loan for 30 years total interest = $139,509

•

• Refinance mortgage for $100,000 at 6% interest (assume closing costs & pre-paid to set up escrow = $4,525)

• Monthly payment $599.55 (increase in monthly cash flow of $65.75)

• Total interest over life of loan = $115,838 + interest paid on original mortgage

$27 409 $143 247

$27,409 = $143,247

•

• Overall result of refinancing:

• Increase in monthly cash flow of $65.75 per month or $789 per year.

H 4 b i dd d t th t ld k dditi l

• However, 4 years are being added to the mortgage so would make additional mortgage payments for that time

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Con’s continued

Con s continued

III Penalty Clausesy

language in the mortgage contract being refinanced charges the borrower a substantial fee for paying off debt early in the life of the loan.

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EDUCATE CLIENTS

1. Consider refinancing if they will stand to save

g

y

a substantial amount of money over time.

2. If there is a need to pay off unexpected costs,

e g medical However rolling unsecured debt

e.g. medical. However, rolling unsecured debt

into a secured loan is not recommended.

3. Explore alternatives especially when the

fi

i

i b i

id

d d t

refinancing is being considered do to poor

spending choices.

4. Make sure the client knows what a predatory

a e su e t e c e t

o s

at a p edato y

loan is: “IF IT SEEMS TO GOOD TO BE

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STREAMLINE

REFINACING BY FHA

STREAMLINE REFIANANCING BY FHA

Th “ t li ” f t th f t th t th i d d d t ti

The “streamline” refers to the fact that there is reduced documentation required and reduced underwriting requirements for lender. It does not mean that there are no costs in the refinancing.

BASIC REQUIREMENTS BASIC REQUIREMENTS:

The mortgage to be refinanced must already be FHA insured The mortgage to be refinanced should have payments current

The refinancing is to result in lowering the borrower’s monthly principal and interest payments

and interest payments

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Streamline Refinancing Continued

TYPES OF STREAMLINE REFINANCING

Some lenders offer "no cost" refinances (actually, no out-of-pocket expenses to the borrower) by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs p g in cash. From this premium, the lender pays any closing costs that are incurred on the transaction.

Lenders may offer streamline refinances and include the closing Lenders may offer streamline refinances and include the closing

costs into the new mortgage amount. This can only be done if there is sufficient equity in the property, as determined by an appraisal. Streamline refinances can also be done without appraisals, but the

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REFINANCING DO’S & DON’T’S

REFINANCING DO S & DON T S

HANDOUT

“13 RULES FOR HOMEOWNERS”