Cash-out Refinance Options

According to Trulia, if you purchased a home in Cary, NC 5 years ago for $276,000, that same house would like be worth $350,000 today. That is a huge amount of Equity built up in just 60 months! Many people are looking at the reports, like the one just done by Zillow this week showing the Raleigh Market to be in the Top fastest growing real estate markets, and thinking now might be the time to refinance, and pull some money out of the home. There are many Cash-out Refinance Options in North Carolina right now.

Cash-out Refinance Options

A Cash-out refinance mortgage is quite different from a HELOC, or line of credit, because you are paying off the original first mortgage, and replacing it with a larger first mortgage, taking the cash to use as you please. A HELOC, or line of Credit, is a second mortgage added on top of the original mortgage. The terms of the original mortgage remain the same, but if you sell the home, you will be required to pay that line of credit back from the net proceeds of the sale.

Another difference is the change in the Tax Code that happened at the end of 2017. With these changes, home equity loans no longer have tax deductions available. For purchase transactions, the mortgage interest deduction will likely remain in place, but the second mortgage deductions were removed with the bill.

This ALSO means that if you have a home with Equity and a Line of Credit, it might be to your advantage to refinance those 2 loans into one mortgage. Then you can keep your mortgage interest deduction, and you won’t have to worry about the adjustable rate associated with the 2nd mortgage.

We all know mortgage rates are going up in the next year, so if you have a mortgage with the SECU, and you might want us to check and see if you have enough equity to refinance out of that adjustable rate mortgage!

Additionally, the Mortgage Insurance on a USDA Home Loan NC and a FHA Loan stay in place for the life of the loan.  Because of this, once you have the Equity to refinance, it makes sense to do so.  We are seeing appreciation rates of more than 4% in most areas, so 3 years into a home, you could get into a loan that will allow that PMI to drop off (and be much cheaper until it does!).  Refinance from a FHA Loan to a Conventional Loan where the PMI falls off once you have a 20% equity gap might also make sense right now!

Many people call us about Cash-out Refinance Options because they are going through a divorce.

We’ve seen a recent situation here in North Carolina where both parties were suppose to make 1/2 of the payment on the house directly into an attorney’s account.  The Attorney would then make the payment each month, and forward to the Bank.  When one of the parties stopped making payment – the attorney did not feel obligated to let the person putting in their money every month of the issue – and the home was foreclosed against…

If the person who is going to “keep” the mortgage doesn’t have a middle credit score of at least 700, a cash out refinance might not be feasible.  You might be able to do it – but your rate might not be the best.  Call us, and we can take a peak at your score.  Also – do you know what your home is worth?  Get an “educated,” professional opinion, don’t rely on Zillow. (again, this is just my advice).

An appraisal will cost you $350 or so, depending on how big the Mc-Mansion is.  Or, you could get an opinion of value from a Real Estate Agent.

Recently, Freddie Mac added a new guideline that SPECIFICALLY addresses special purpose cash-out refinance mortgages to take a spouse off the mortgage. Guidelines for the program include:

• A full appraisal of the property must be done.
• The borrower and co-owner must have jointly owned the property for at least 12 months prior to the loan application. (Those who inherit an interest in the property are exempt.)
• The borrower and co-owner must have occupied the property as their primary residence. (Again, parties who inherit an interest in the property are exempt.)
• Borrower retaining sole ownership of the property may not receive any proceeds from the refinance transaction.
• The borrower and the co-owner receiving the buy out proceeds must provide a written agreement, signed by all parties, stating the terms of the property transfer and the disposition of the proceeds from the refinancing transaction.
• For this special purpose cash-out refinance mortgages, the borrower is not required to use loan proceeds to satisfy existing second liens (including home equity lines of credit) if the liens are subordinated to the new refinance mortgage and meet Freddie Mac requirements.

If you are considering a refinance, please call Steve and Eleanor Thorne 919 649 5058. We work with folks all across NC, and we can talk with you about Cash-out Refinance Options to pay for College, redecorate your home, do improvements… or you could use it to finish that divorce.