Home Loan Refinance

Refinancing is the process of obtaining new financing on a property you already own, paying off the existing financing. Rate and Term refinancing will usually extend the life of the new loan longer than the existing loan term, the benefit lies in the reduced interest rate which lowers monthly payments. For existing loans that have been paid down for many years, shorter term loans (less than 30 years) are available at even lower interest rates. Refinancing, in most cases, will incur costs related to title insurance, escrow, appraisal, credit check and lender fees. It is important to balance these costs of refinancing against the benefit of a lower monthly payment.

Cash Out refinancing is the process of obtaining new financing and either including other existing loans you may have as part of the new loan, or actually receiving cash after the loan closing. This is a popular refinance option in real estate markets with rising values, but there is a significant downside if the "cash out" isn't being used for investment purposes, but rather for lifestyle enhancement. The conversion of unsecured debt to debt secured by your home can put your home at risk if you suffer a financial hardship in the future.

Refinancing loans when the property is in foreclosure

The first step when attempting to get a new loan for a property in foreclosure is understanding any new potential lender's view. They'll be concerned since payments have not been made in the past, and they won't want to take over a different lender's problem. So, the safest way to protect themselves is to limit how much money and under what conditions they will lend on a property.

1. Generally, lenders will not lend more than 70% of the value of the property.
2. Many lenders will require your existing loan to be brought current before lending.
3. You'll have to be able to document why you got behind on payments.
4. You'll need to be able to document income sufficient to make new payments.

What if you can't do these things?

If you don't have the income to support new loan payments, you should probably consider selling the property, even if you need to do so by using a short sale. Refinancing now, and paying the fees necessary with any refinance won't help you if in the future you'll have difficulty making the new payments.

If you had a loss of income, but now are earning enough to make payments in the future, a refinance might be right for you. If your existing loan has an attractive interest rate, also consider a lender workout option. A workout is often cheaper than a refinance although it could take up to a year before your loan is current and your credit report starts improving.

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