Both primary residences and rental properties are eligible for refinancing in the Lone Star State. And many people are taking advantage of the low-interest rates currently available on home equity loans to accomplish just that.
In addition, some people are taking out equity by refinancing their homes.
There are two possible routes to take when refinancing. A “rate and term” refinance or a “cash out” refinance are types of Texas home equity loans.
A home equity loan allows you to borrow money against the value of your house or other real estate you own.
A “rate and term” refinance is what most people do when they want to lower their interest rate. The borrower maintains the same loan balance but negotiates a new interest rate and repayment schedule.
Perhaps they’re switching from a 30-year to a 15-year note. A rate and term refinance refer to a modification of the original loan in which only the interest rate or the loan’s duration is altered.
Payments can be reduced as interest rates on mortgages drop. However, some customers opt for a “cash out” refinance (Home Equity loan), which allows them to take equity (cash) out of their homes or investment properties for uses other than mortgage payments or home improvements.
Let’s assume a household owes $15,000 total, and their monthly auto payment is $450. It’s typical practice for families to consolidate their high-interest debt by refinancing their home and taking out enough cash to pay off significant purchases like vehicles and credit cards. There could be a $50 increase in the mortgage but no more car payments. So that’s an extra $400 a month for a family.
Some advice against using home equity loans for debt consolidation because it’s not prudent to stretch a 3-5 year debt out over 15-30 years. Indeed, these folks have a point. When I help a customer save $400-$500 each month, sometimes even $1,000, the mortgage on their 30-year home can be paid off in 12-15 years instead of the original 30.
In most cases, a family will finish paying off their mortgage much sooner after getting a home equity loan than they would have without one.
If you’re wondering whether or not a cash-out refinance of your Texas home equity loan makes financial sense, we’re here to help.
Regulatory Framework for Home Equity Loans
Because the borrower is increasing the loan’s initial amount, the interest rate on a home equity loan is higher than that of a rate and term refinance. It’s also a riskier loan when liquidating a primary residence or an investment property. The more significant the risk, the higher the interest rate.
And in Texas, you can only borrow up to 80% of the value of your home. If the value of your home is $200,000, the most you may borrow is 160 percent of that or 160 thousand dollars. If you owe $100,000, you might borrow as much as $60,000 (80%).
The 3% equity rule also applies to mortgages: In other words, the sum of all costs cannot be more than three percent of the loan amount. Those with smaller mortgage balances will be hit the hardest. For instance, if your home is only worth $75,000 and our maximum loan-to-value ratio is 80%, the most we could lend you would be $60,000. 3% of 60k equals $1800. It’s not hard to go over the 3% mark if the title firm charges $700 for the title policy, the appraiser assesses $325, and the bank charges $500 to underwrite the loan. The mortgage firm could charge a maximum of $275 below the 3% cap.
Rule of Thumb for Home Equity Loans: 12 Days; Wait Until We Fund: 3 Days
The minimum time required to close a mortgage in Texas is 12 days. A special 12-day letter needs to be signed. The home loan can’t be funded for another three days after closing. To complete home equity refinance in Texas; you should team up with a mortgage lender with experience servicing borrowers in the Lone Star State. Please get in touch with us at 512-996-8194 with any more inquiries; we serve clients from around Texas.
Many people find tapping their home’s equity an excellent approach to kick off a new financial strategy. For my customers, they mean being able to save and invest more money, getting out of debt, and eliminating recurring expenses. My customers have held hundreds monthly by settling their high-interest credit card debt. I have successfully used a home equity loan to save over $1,000 a month for a family of four.
They want to use the funds they have set aside to make prepayments on their mortgage, reducing their 30-year loan to a 15-year one. Therefore, a home equity mortgage is a fantastic way to get ahead monetarily if appropriately used.
My lending strategy has evolved over my five years in the mortgage industry. Simply because anyone can get a mortgage, on the other hand, my company is assisting people to become financially stable by first helping them pay off their mortgages.
The majority of my customers are familiar with my mortgage lending stance. Many mortgage brokers advertise themselves as having “the lowest 30-year mortgage rate” or “the best Texas 15-year mtg rate,” but I don’t operate that way. In general, I favor the client’s immediate and long-term interests. Let’s use this program if you want a 15-year mortgage with affordable closing expenses. Let’s get a home equity loan to pay off our debt.
I don’t see that one mortgage arrangement can work for everyone. When my customers have the same demographics, financial situations, and long-term objectives, I can switch to a cookie-cutter approach to mortgage lending. However, I currently serve clients from the extremely poor to the wealthy.
It is up to you and your mortgage specialist to decide whether your mortgage will be a debt instrument or a better financial tool. And in today’s economy, when $5 gas isn’t unreasonable, it’s essential to work with a professional who will take the time to listen and present the best mortgage plan for your unique situation. That’s because a mortgage is something you have to have and keep forever.
Here are some considerations to make before investing in a home or refinancing an existing mortgage:
1) How much money do I owe at the moment? How much interest am I paying on my monthly debts?
The second question is, “How much do I have in cash?” How about a mortgage where I can (a) pay less each month and (b) put away more? The interest rate is now the primary factor. It doesn’t matter if the 15-year mortgage rate is the best if you can’t pay it. Choose the longer term (30 years).
Thirdly, how long do I intend to stay in this house? Is the value of this house rising?
4) How will this new mortgage fit into my long-term financial strategy?
In step 4, you’ll see how everything comes together. I spend most of my time with a customer working on the long-term goal and tailoring the mortgage to that plan. Without an ideal for the medium to long term, most homebuyers chase the lowest rate possible and wind up spending more overall.
Consider the collapse of the subprime mortgage market. Sub-prime loans are OK. There are times when unfortunate events drive people to destroy their credit. People often have many collections because of life events such as divorce and unexpected medical expenditures. Sometimes people lose their jobs, and their savings are depleted before they had planned to. Subprime loans are not inherently bad but require Fixed interest rates. Lacking an adjusting mechanism. Since ARMs have lower rates than FIXED rates, homebuyers have been drawn to them during the sub-prime meltdown, causing the country to lose billions of dollars. Most borrowers preferred adjustable rates to fixed ones because of the former’s more attractive pricing structure.
We now have a severe issue because thousands of people with poor credit taking out adjustable-rate mortgages because they were chasing the lowest rate.
Having a strategy for one’s financial future. Take the situation where you are self-employed and do not have access to a 401(k) through your employer as an illustration. The lack of a 401(k) or Individual Retirement Account (IRA) can be mitigated in some cases through investment in real estate. The plan is to amass a small portfolio of high-quality real estate that, if paid off, can provide a steady stream of passive income until retirement finally arrives. Envision if your mortgage broker took the time to learn about your aspirations for the future and tailored your new loan accordingly. The average home loan may be paid off in 15 to 30 years, which is ironic given that most individuals don’t expect to retire until then. The home you purchase today can help you quit tomorrow, but only if you have the correct home financing.
Remember that most mortgages are for 15 or 30 years, so if you plan, you can use that to your advantage when purchasing your first house. I realize that most people don’t maintain their homes for that long, but it’s better to get into a mortgage with a plan than without one.
The lack of money is the root cause of many other problems in life, but few people want to spend the time to think about money.
That sets me apart from the rest of the Texas Mortgage Loan providers. People can either benefit from working with me, or I can put them further in debt. It’s true that “selling low rates” is more straightforward, but that shouldn’t come at the expense of genuinely assisting a client.
So that you know, PMI is something you should attempt to avoid.
Clients of mine typically avoid PMI. However, opting for an 80/15, 80/10, or 80/10/10 mortgage can save money on closing costs and unnecessary private mortgage insurance (PMI). Another reason why “chasing the lowest rate” isn’t always the most brilliant move: is this. Having private mortgage insurance on a loan is preferable to not having it. However, the upside of not having PMI is substantial. When private mortgage insurance (PMI) is not included in your home loan, you save money on the interest rate and the closing costs.
For now, I’d like to offer a quick overview of these three concerns and explain why they are essential to remember during a house purchase or refinancing. These are the three criteria around which your mortgage officer should build your loan. If they don’t leave. Is a company serving you if all they do is offer you a mortgage rate?
Advertisements for historically low mortgage rates are a staple of the mortgage industry. We guarantee the lowest prices in all of Texas!” The question is, “How much did it cost you to get this rate?” while considering the loan. Having a low mtg rate is one thing, but what did it take to obtain that rate?
Take a look at one of the mortgage ads from today. (April 17) They’re promoting a rate of 4.87 percent.
Funny. They promote a wonderful rate for 30 years, closer to 6%. The rate is essential, but there’s more to acquiring a mortgage than simply the rate, as you’ll discover when you calculate the points needed to get this rate. Final expenses.
Should you “buy the rate down” with points to get a reasonable rate, for instance, if you’re purchasing a home for $200,000? Discount points will set you back $6,000 to lock in this low rate. This, even though it happens frequently. Mortgage brokers advertise low-interest rates because consumers demand them.
A little bit like when I first got my Toyota Tundra. I opted for the two-wheel drive instead of the four-wheel drive to save money. I was so pleased with myself for finding the “best deal in town,” but when it snowed or iced over, I had to have my wife drive her front-wheel-drive Honda Accord.
This is why it’s essential to engage with a mortgage broker (like me) who considers mortgage lending as part of a client’s overall financial plan. Because if I see that a client has a lot of credit cards and unsecured debt, that $6,000 shouldn’t go toward a new (tax-deductible) debt but rather toward paying off old, high-interest unsecured debt.
If you have $6,000 to put toward debt, rather than trying to save $200 on your mortgage, pay off the debt with the 15% interest rate costing you $500 per month. You can pay an extra $100 and still save $300. Put this $300 toward your goals, whether they be saving, investing, or just plain having fun.
But think of all the money I’ll save on interest if I can get a low rate! Should I not shop for the most terrific deal possible to reduce my regular expenses? Yes. You can put that extra money toward your mortgage payment when you’ve paid off your credit card balances and no longer have to pay $500 monthly. With this strategy, a 30-year mortgage can be reduced to a 12- or 15-year loan. This will result in much-reduced fees and interest costs.
Consider the larger picture before committing to a mortgage or refinancing a home. These financial transactions can help you advance financially or put you more profoundly in the red.
Austin-based mortgage broker Jon Spears assists Texans from all walks of life in securing financing for house purchases and renovations. He is an expert in both purchase and refinance mortgages. Bills can be consolidated with a home equity loan in Texas, which he also assists with. He also assists investors in acquiring and refinancing real estate.
Since launching [http://www.mylendingplace.com] in 2005, he has closed mortgages and refinances totaling millions of dollars. His direct line is 512-996-8194.