Posted By: Sean Terry | December 15, 2008
Article Written By: Ari Schiff, US Capital Mortgage
Rate and Term Refinance vs. Cash Out Refinance
A “Rate and Term Refinance” is defined as follows: replacement of an existing secured home loan with a new secured home loan at a different rate and set of terms. The existing loan is effectively paid off by the opening of the new loan, with the old balance being paid off by the new loan. This type of refinance is called a “rate and term refinance” because the borrower is simply changing the rate and terms of the loan, and nothing else. This type of refinance can be closed with no seasoning requirements which means 1 day after you have purchase a home from Fortress Investments we can refinance you to a conforming 30 year loan. This is different than a “cash out refinance” which requires 1 year of seasoning to justify increasing the original loan amount.
Example of a Rate and Term Refinance
A investor who owes $150,000 on a home valued at $200,000 has $50,000 in equity. The term of the existing loan is 0% interest with a 45 day balloon. The investor can do a “Rate and Term Refinance” on the property at 75% of the appraised value thus paying off the short term loan and replacing it with a conforming 30 year loan at 6.8% to 7.2%. (Rates are subject to market and credit.)
Example of a Cash Out Refinance
A homeowner who owes $80,000 on a home valued at $200,000 has $120,000 in equity. That equity can be liquidated with a cash out refinance loan providing the loan is larger than $80,000. The owner could use the refinance loan to pay off the original mortgage and could then pocket whatever money is left over.
The property must be owned for 1 year to perform a cash out refinance.
If you would like more information on how the financing works regarding Fortress Investor program please call Ari Schiff at his number below.
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