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

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Annabelle Cummings
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1 MORTGAGE REFINACING Replacing the current mortgage with some other kind of financing thus securing the same asset.

2 TYPES SOF REFINANCING 1. Standard fixed mortgage g with better terms. 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 the home is now being mortgaged.

3 Types of Refinancing Continued II No closing Cost Refinances Reduces upfront fees but the interest rate offered is generally higher than if closing costs were not rolled into loan.

4 Types of Refinancing Continued III. Cash out loan-refinancing a loan or series of loan debts 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 Non-tax deductible debt can be transformed to taxdeductible debt. This could lower taxes and put the client in a more advantageous tax bracket.

high-interest debt, e.g. credit cards, with lower interest rate financing Net savings can be applied

5 Know Your Client Evaluate your clients financial and personal situation. Understand physical, behavioral and psychological signs of distress. Know your client s financial situation-past, present and future.

6 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? 4. Where did your client get the idea to refinance?

What type of refinancing are they considering? 3.

7 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? 8. Is it really a tax advantage?

8 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 number of payments. Longer term loan-reduce amount of payment From ARM to Fixed continued affordability of the home.

Money saved can be used to pay down principal of loan, further reducing

9 Pro s continued II. Reduce Risk From Adjustable Rate Loan to Fixed Ensure a steady interest rate over term of loan and insure constant amount for payment and interest

10 Pro s continued III Liquidate equity to pay off other debt 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 early.

high-interest debt such as credit cards with lower

11 CON S OF MORTGAGE REFINACING I Closing Cost Fees a. Fees may out weigh savings expected from refinancing. Clients generally are looking for the bottom line or what their monthly payment going to be and do not realize that they are being offered loaded loans.

Clients generally are looking for the bottom line or what their

12 Con s Continued II Greater Risk Even if the payment is lowered, the total loan may result in larger total interest costs over the life of the loan Bad spending habits continue after refinancing i Client becomes upside down with loan-to-value.

costs over the life of the loan Bad spending habits continue

13 Example: Con s Continued Original mortgage $100,000 at 7% interest. Remaining life on the loan is 26 years (has made payments for 4 years of $665.30). 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 $ (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 Overall result of refinancing: Increase in monthly cash flow of $65.75 per month or $789 per year. However, 4 years are being added d to the mortgage so would make additional mortgage payments for that time Paid 2 sets of closing costs

Monthly payment $599.55 (increase in monthly cash flow of $65.

14 Con s continued III Penalty Clauses language in the mortgage contract being refinanced charges the borrower a substantial fee for paying off debt early in the life of the loan. cost to cover penalty increases amount of new loan substantially.

fee for paying off debt early in the life of the loan.

15 EDUCATE CLIENTS 1. Consider refinancing if they will stand to save 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 into a secured loan is not recommended. 3. Explore alternatives especially when the refinancing i is being considered d do to poor spending choices. 4. Make sure the client knows what a predatory loan is: IF IT SEEMS TO GOOD TO BE TRUE IT PROBABLY IS.

However, rolling unsecured debt into a secured loan is not recommended. 3.

16 STREAMLINE REFINACING BY FHA STREAMLINE REFIANANCING BY FHA The streamline refers to the fact that t there is reduced d documentation ti required and reduced underwriting requirements for lender. It does not mean that there are no costs in the refinancing. 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 No cash may be taken out on mortgages refinanced using the streamline refinancing process

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

17 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 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 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 new loan amount cannot exceed the original loan amount.

From this premium, the lender pays any closing costs that are incurred on the transaction.

18 REFINANCING DO S &DON T S HANDOUT 13 RULES FOR HOMEOWNERS FROM THE NATIONAL CONSUMER LAW CENTER

Section C. Maximum Mortgage Amounts on Streamline Refinances Overview

Section C. Maximum Mortgage Amounts on Overview In This Section This section contains the topics listed in the table below. Topic Topic Name See Page 1 General Information on 3-C-2 2 Without an Appraisal