Cash Out Mortgage Loan

A cash out mortgage loan can be a great help for the home owner looking for a way to take advantage of the piggy bank that he lives in. After all, as time rolls along, all but a few mortgages like interest only pare down the principle of the loan giving more and more of real house ownership to the property holder. But life is never static and is always changing so that financial needs, greeds and emergencies pop up on the radar screen and often take our full attention until resolved or satisfied. A cash out mortgage loan can help with that very tunnel vision problem by allowing the property holder to turn the house upside down and shake out all the coins deposited there over the years known as home equity. This lending agreement has its own set of pros and cons and needs to be understood before being implemented.

First, the decision needs to be made about how long the property holder plans on living in his residence. Any length less than seven to ten years will be a waste of money because the amount of interest paid on the new lending agreement will not be smaller than the cost of the points and origination fees needed to secure the new lending agreement. Leaving a house before that time will put the owner in an upside down position and a cash out mortgage loan will be a millstone rather than a stepping stone to financial health.

How does a cash out mortgage loan work? Take Mr. and Mrs. Joe Wish I Had More Money. These two folks have worked hard to get where they are in life and now have thirty thousand dollars in equity based on the buying price of their house ten years ago. Interest rates on mortgages are pretty much the same as they were ten years ago, so the couple is thinking about taking out a borrowing agreement for one hundred and thirty thousand dollars again and running off to Aruba with their easy thirty thousand profit. Also, the husband has an eye on a sports car, but the wife wants to give the grandchildren a nice Christmas this year. Upon preliminary discussion with their bank officer, the twosome has been rudely slapped with a couple of realities.

First, if the couple takes all of the equity in the house, they will have to pay for Private Mortgage Insurance (PMI) which will cost thousands of dollars over the life of the new mortgage. Any agreement over eighty percent of the total equity is required to have PMI. So the equity available without adding PMI is now down to twenty four thousand dollars. Goodbye sports car. In addition, the twosome has also discovered that because of a couple of late payments over the years and because of a backyard in ground swimming pool loan from three years ago, the bank has now declared that the couple will have to pay a higher rate of interest on the cash out mortgage loan. This higher rate is due to a lowered credit score due to the late payments and a higher debt to income ratio. Both of these issues can be loan killers for borrowers seeking any kind of lending agreement, especially with a bank.

Suddenly, their new cash out mortgage loan is going to be a hundred and seven dollars more a month than they have been paying for the past ten years. Gulp. The final reality about this lending agreement is that the cost of this mortgage will not only be a higher interest rate, but the cost of just getting the loan will be three and a half points. A point represents one percent of the loan's value, so for this now every unhappy twosome the price of just getting the privilege to borrow more expensive money will be four thousand five hundred and fifty dollars. Every mortgage, even if it is a second mortgage like a home equity loan will have points associated with it, although sometimes the language is not points but a number of fees. It's all the same. "For what is a man advantaged if he gain the whole world and lose himself or be cast away?" (Luke 9:25)

If the couple uses equity money gained from the cash out mortgage loan, the actual amount available for the loan could be close to eighteen thousand dollars. A long way from the once dreamed thirty thousand. These costs and restrictions are the reality of a cash out mortgage loan. But for the right set of circumstances this lending agreement can help fund an operation not covered by insurance, college tuition, a dream vacation for a golden anniversary or other important time in the life of a homeowner. But one important final reminder is in order.

No one should take the first offer that comes across the negotiating table. Not only should a borrower seek out three or four different mortgage lending agreement offers and have each lending company try and beat the others, but a real estate expert or a financial advisor or both should be retained to help advise anyone seeking such an important fiscal decision. After all, this involves money that represents thousands and thousands of hours of employment and a person's place of refuge and comfort. To make a decision that could hasten foreclosure or loan default would indeed be tragic for a family. Even more tragic however is a person facing death without the certainty of heaven.




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