Monday, May 7, 2007

Cash Out Refinance Loans At 16-Year High

Despite higher interest rates, homeowners in record numbers are converting ARMs to fixed-rate mortgages and cashing out equity via refinance loans.

Homeowners continue to prefer cash out refinance loans to other forms of borrowing. Frank Nothaft, Freddie Mac vice president and chief economist, says,

“Mortgage borrowers continue to refinance their mortgages at a higher frequency than historically would have occurred given the rise in mortgage rates over this year. But the wide proliferation of adjustable-rate mortgages (ARMs) originated in the past few years that are nearing their first interest-rate adjustment provides borrowers an incentive to refinance into a lower-cost ARM or fixed-rate mortgage. In addition, borrowers who might have considered a prime rate home equity loan for a home improvement or other need are turning to cash out refinance options now that the prime rate is above 8 percent.”

Beyond just converting an adjustable-rate loan to a fixed-rate loan, borrowers are also cashing out their equity. Almost 90 percent of Freddie Mac refinance loans are for amounts at least 5 percent higher than the original mortgage. The most recent Cash Out Refinance Report from the mortgage giant shows that homes refinanced during the third quarter of 2006 had experienced a median price appreciation of 33 percent since the original loan was made. The median age of the original loan was 3.4 years.

It is this accrued equity that homeowners are tapping into to pay off high-interest credit cards, to fund home improvement projects, or to finance their children’s college education. An added benefit is that interest paid on a mortgage is tax deductible (usually up to $100,000 for taxpayers filing jointly).

Since a cash out refinance loan results in a new mortgage, it incurs closing costs, filing and legal fees, and other expenses that can add up to thousands of dollars. This makes refinancing unwise for people planning to move in the next few years as they will not have time to recoup their refinancing costs.

Bad Credit Refinancing
For borrowers with less than perfect credit, a refinance loan is the smartest way to get needed cash. Bad credit usually means a FICO score below 620. This FICO number reflects credit-worthiness based on borrowing habits, payment history and other financial factors. Creditors use it when deciding whether to make a loan and what interest rate to charge. The lower the credit score, the higher the risk for the lender. But since a refinance loan is secured by real property, the risk is minimized and the interest rate is better.

According to Steven Frank, Senior Vice President at FlexPoint Funding,
“A ‘subprime’ borrower can expect to pay between 1.5 percent and 2 percent higher interest for a mortgage, but there is no shortage of money in the subprime loan market. Most subprime borrowers won’t qualify for a second mortgage or a home equity line of credit. They will have to refinance their first mortgage if they want to cash out some of their equity. Depending on their personal situation, a homeowner may be able to borrow up to 95 percent LTV (loan to value). More likelyArticle Submission, it will be in the 80 percent range.”

You can learn more about bad credit refinancing and get a free loan quote at sites like Simple Mortgage Refinancing and Bad Credit Mortgage Refinancing Now.

ABOUT THE AUTHOR

Mike Hamel is the author of three business books and several articles about mortgage financing. His material is featured on sites like Easy Mortgage Refinancing.

Bad Credit Refinance

This article provides useful, detailed information about Bad Credit Refinance.Creditors give first preference to borrowers who have a good credit rating in their credit report. However, for borrowers who may not have a perfect credit score, refinancing is not out of reach. In this article we\'ll see what is meant by a Bad Credit report and how to improve your credit profile.

Most lenders use FICO credit scores when assessing the borrower\'s credit report. The FICO credit score system, the most popular system in Refinance industry today, derives its acronym from `Fair, Isaac and Co\'., the company that developed the system in the 1950s. The main advantage of the system is that all the information provided by the borrower in the credit report is analyzed, and a single score given.

There are 5 factors that are weighted by lenders when assigning the credit score. They are: Borrower\'s Payment History [Punctuality of repayment of any earlier loan/s] (35%), Amounts that are owed by the borrower on various accounts (30%), Credit History Length [Length of Payment history] (15%), Borrower\'s existing credit types and how they are used (10%), and New Credit [Number of recently opened accounts, and the ratio of these new accounts to that of total number of credit accounts] (10%). Though the weight is only 10%, the last mentioned factor is very important. The lender may disapprove a loan if the new credit ratio is high.

If the borrower\'s credit report scores low, the borrower can still get the score improved by: Paying all bills in time, keeping existing credits under control [by having minimum number of accounts or by using `Debt Consolidation\'], limiting the number of credit inquiries and paying off unnecessary debt.

According to experts, a credit report review at least once a year, especially before applying for RefinancingPsychology Articles, can be of immense use to the borrower.

ABOUT THE AUTHOR

Morgan Hamilton offers expert advice and great tips regarding all aspects concerning Credit Cards. Get the information you are seeking now by visiting Bad Credit Credit Cards

Loan Refinance

This article provides useful, detailed information about Loan Refinance.
There are many ways in which Loans can be categorized. When we say Loan, we are talking about big Loans, not payday Loans. If we categorize them based on their nature, there are 4 types: Mortgage Refinance Loans, Home Equity Loan, Debt Consolidation Loans and Personal Loans.

Whatever the type of Loan, the process involves certain procedural steps.
A Home Equity Loan is a type of Loan in which the borrower is expected to repay a fixed amount of money over a fixed time period. This is confirmed by a `line of credit\', an agreement that is signed by the borrower. However, there is a flexibility option in which the borrower can pay interest only on the amount used.

A Debt Consolidation Loan is the best option if the person is repaying several different Loans simultaneously, such as numerous credit card balances. The debt consolidation process combines all these into one Loan. In other words, the person gets one monthly statement and pays only once a month. Though debt consolidation is a good option, there are limitations. If the Loan is stretched out over a longer time period, the interest may become higher.

Next is the Personal Loan. It includes any large amount of Loan meant for higher studies [Student Loans], starting a business, or other options.
Whatever the type of Loan Refinance, credit situation tracking remains of fundamental importance. Though this can be done by one\'s self manually, or by hiring a Loan professional, there are excellent alternatives available todayHealth Fitness Articles, with many computer tools such as Microsoft Money 2005 Deluxe. They come with price tags in the $30 - $60 range.

ABOUT THE AUTHOR

Bad Credit Refinance provides detailed information on refinance, bad credit refinance, car refinance, loan refinance and more. Bad Credit Refinance is affiliated with Refinance Used Auto Loans.