Rate Games: Squeeze Out Cash
and Save Money
Whether you own a single-family residence, or a two, three or four
family property you have more opportunities at your disposal than
you think. With higher loan amounts for conforming loans and rates
that are still at historic lows, there is a triangle of benefits
you can grab for yourself. Lowering monthly payment, reducing term
(or payback time), and getting cash.
- Reduce your monthly payment for better cash flow. Single-family
to four-family homeowners who have jumbo loans can save money
every month by moving the loan balance into a rate that is between
.25% and .375% lower than current jumbo rates. This money can
then be used for a savings or investment plan, or for an even
faster pay-off of the mortgage. Depending upon the rate of jumbo
loans at the time you originally took out the loan, your rate
savings may be even greater than .375%. You won't know until you
investigate with a mortgage professional.
- Reduce your term while keeping your payments the same. This
is a great strategy if you plan to hold onto the property until
you pay it off completely. It's entirely possible to reduce the
payback period of your loan, and save many thousands of dollars
by doing so. For example, a 30-year mortgage with a balance of
$332,000 at a rate of 6.875% has a monthly payment of $2,181.
Let's assume this loan was taken out 2 years ago. If this balance
is refinanced to a 20-year mortgage at the current rate of 5.25%,
the payment will be $2237 per month. The payment, essentially,
remains the same. However, by cutting off 10 years, you will save
$209,000 over the term of the loan. Whenever rates move downward,
this opportunity becomes available. Again, this works for one
through four- family property.
- Get cash out of your property while keeping payments the same.
A good strategy for squeezing some extra cash out of your property.
There is no specific formula to figure how much cash you can get.
This will depend upon the difference between your current mortgage
rate and the rate of the new program you choose. Add to this the
amount of cash you're seeking, and your overall strategy for the
property
well, you can see how challenging it is to figure
this out. For example, your current 30-year mortgage has a balance
of $205,000 and a rate of 6.5% with a monthly payment of $1296.
Let's say you're planning to sell the property in 2 or 3 years
and you want to get cash for improvements, but don't want your
payments to increase under a new program. I would recommend a
3/1 Intermediate ARM program to get a current rate of 3.875% to
maximize the cash you can get. If you borrow $275,000 you'll receive
$70,000 in cash as a result of the refinance. The monthly payment
will be $1293 (fixed for the next 3 years before it adjusts) so
you've stayed within your payment guideline while getting the
cash you want.
- Get cash, lower your monthly payment AND reduce your payback
period. This possibility exists when you are paying a relatively
high rate. Maybe your credit wasn't the greatest when you went
for mortgage financing last time, but you've made your mortgage
and other bill payments on time. You may be in an excellent position
to benefit in all three ways. Though rare, there are still some
who fit this description. [Two simple words
call me!]
It is amazing that rates are as low as they are for as long as
they have been. Look at a possible play for yourself to see if the
benefits highlighted above are available to you.
Mark Atkinson is a partner in A&M Mortgage Solutions, a mortgage
resource for those buying, selling or refinancing real estate. He
can be reached by phone at (860) 350-8400. E-mail at Info@AM-Consult.com.
|