YES YOU CAN REFINANCE EVEN IF YOUR HOUSE HAS LOST VALUE! (Ridhi Raheja via Activerain)

Courtesy of Ridhi Raheja via Activerain.

Homeowners, If you want to lower your monthly payments, look at these options.

YES YOU CAN REFINANCE EVEN IF YOUR HOUSE HAS LOST VALUE!

It is estimated that over 20 million American homeowners owe more on their mortgage than the value of their homes.  You don't need to sit on sidelines and feel bad because you can't refinance because your house has lost value. There are several things you can do to make refinancing a reality for yourself.

First go  to these sites and check who owns your mortgage

• 1-800-FREDDIE (8am to 8pm EST)
• www.freddiemac.com/mymortgage
• 1-800-7fannie(8am to 8 pm EST)
• www.fanniemae.com/loanlookup
•  

       

if your loan is owned by either one of these you can refinance under government's initiative for homeowners who have lost value in their homes. Call  your trusted mortgage lender and ask if they can run the automated underwriting to see if you are eligible for that program,

Now let us say you loan is not owned by either one of these , check if you have a FHA mortgage and if the answer is yes, you can still refinance under the FHA streamline option.

Let us say you don't qualify under any of these options , all is not lost yet. Here is my last suggestion. Everybody has heard of " CASH OUT MORTGAGE", where you can pull cash out of the house to take care of your financial needs but what about a 'CASH-IN- MORTGAGE" .

so what is a cash-in-mortgage? This is a strategy where you lower your balance with using your own personal funds is called a cash-in-mortgage. Using cash to pay down your mortgage may allow you to refinance into a lower interest rate and lower your monthly payments. For example, consider a homeowner who owns a $200,000 home that has declined in value to $150,000 . Here's what would happen if the homeowner uses $60,000 in cash to reduce the balance of their $180,000 mortgage to $120,000.

 

 how would you  like to earn 10.5% TAX FREE(AND RISK FREE) RATE OF RETURN ON YUR $60,000 INVESTMENT.

STEP 1: $525 monthly savingsX12= $6300 annual savings.

STEP2 : $6300 annual saving/$60,000 investment = 10.5% CASH ON CASH RETURN ON INVESTMENT .

There are two ways to get the $60,00 in cash to make this strategy work:

1. You can use cash from your retirement account or bank account that may be currently earning you 0% or 1% interest .This might not be the right option for everybody , so please talk to your financial advisor.
2. You could sell some other investment assets that are earning you less than 10.5% after tax.

So let us say , that we don't have access to the cash, you could still refinance and take advantage of really low rates if you could ask your lender to build PMI into the rate . What that means is that you don't pay mortgage insurance monthly but it is paid up front and it can be paid by taking a slightly higher interest rate. The difference is usually a quarter percent .

Either way , the strategy makes sense as long as you can earn a higher after-tax return on your money by paying down your mortgage than you would by leaving your cash wherever it is right now.