No Cash-Out Refinance
No Cash-Out Refinance - A No Cash-Out Refinance is a transaction in which the new mortgage amount is limited to the sum of the remaining balance of all existing mortgages, closing costs (including prepaid items), and any discount points.
Many people will do a no cash out refinance to simply lower their term from 30 years to 25 or from 20 years to 20 years, etc... By lowering your term you will save a substantial amount of mortgage interest. Cash out refinances can also be done for the opposite reason: A borrower may be on a 15 year mortgage and something happens at work or an unexpected expense comes up and it may be necessary to increase your term back up to a 30 year mortgage instead of the 15 so that you can free up some money each month.
You are only allowed to receive $2,000 or 2%, whichever is the lesser, of your loan amount back in a rate and term refinance, also known as a no-cash out refinance. No cash out refinances are done for many reasons. One reason is to lower the rate and or term of your loan. Lowering your rate can save you money from your monthly mortgage payment and lowering your term can cut the time it takes you to pay off your mortgage saving you tens of thousands (possibly hundreds of thousands) of dollars of mortgage interest.
You are allowed to receive a maximum amount of $2000 during a No Cash-Out Refinance.
An experienced mortgage broker often submits Rate and Term Refinance applications to the banks that currently hold the mortgage notes, because there is a good chance the homeowners qualify for "Streamline Refinance" programs, which offer reduced documentation and less settlement costs to the homeowners.
No Cash Out means different things to different lenders. If you are looking for a mortgage that is non conventional then the rule of thumb is 1%. That means you cannot have more then 1% cash in hand for a non cash out refinance.
Another reason to do a no cash out refinance is because you currently have a 3,5,7 year fixed-adjustable rate mortgage and it is about to expire and start adjusting every 6-12 months, or you would like to get off the adjustable rate mortgage all-together and into a fixed rate mortgage before the market climbs into the 7% range.
Refinancing For A Shorter Term To Save Money - Refinancing for a shorter term to save money with lower rates is not the only reason you should refinance your home. Considering the option for a shorter loan can save thousands of dollars in interest and free up income for use in the future. A short term loan can also help you pay down your principal faster.
Most people think that by refinancing from a 30 year fixed loan to a 15 year fixed loan, their payments will double. Why wouldn't they? You are paying off the loan twice as fast, so the payments must be twice as much. What most people don't realize is that most of your monthly payments go toward interest. A much smaller portion of your payment actually goes toward reducing the balance of the loan. If you cut the loan term in half, you will still pay the same amount in interest each month. It is your monthly principle payment that goes up, and since this payment is already relatively low, it doesn't take a huge increase in the total payment to be able to pay your loan off in half the time.
The homeowner should establish their objectives for refinancing first to determine if this is an option for them. Once personal goals for refinancing are established then finding the best product will not be a problem.
Generally, the shorter the loan term the faster you build equity. For many families this can be useful as you can plan your mortgage to be paid off at the same time you plan to incur new expenses such as a college education or a retirement home.
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Information listed above is to be used for educational purposes only and is not guaranteed