Due to market conditions and the declining home values, “cash-in” Refinances are becoming extremely popular. During the sub-prime years this type of loan would have never existed. The fact of the matter is that the financially savvy homeowner realizes that money market accounts, certificate of deposits, saving accounts, etc. are paying, in some case, 1% or less A YEAR, if not losing value. So it makes more sense to sink your savings into your home.
Although there has been some fluctuation as of late in mortgage rates, when you factor in the tax deductions with a 30 year fixed rate of 4.5% your effective rate could easily be brought down into the mid 3%’s range.
The challenge for most homeowners to achieve this financial strategy is in most cases the declining home values. The only way to overcome such a challenge is to take a portion of the money that is sitting in a non performing financial instrument to offset the equity needed to make the ratios fit the lending guidelines. then the homeowner can take advantage of current historically low rates and fix them for 30 years.
As an originator this strategy sounded absurd at first but when several of my previous clients started to ask me about the possibility of making this happen I realized that there is a great opportunity for the home owner that is planning on staying in their home for the long term.
Even when the Loan to Value seems unreachable, an FHA loan makes a great solution to this problem since the lower rates usually offset the private mortgage insurance payment and the home owner only needs to have about 3.5% in equity in the house.
There are many things that are quite unusual about the current state of the economy but with a little “outside the box” type of thinking there millions of homeowners that can take advantage of struggling economy.