Should you consider financing closing costs, escrow reserves,
or other cash needed at closing?
If you've built up some equity in your home,
when you refinance, you may be able to "cash out" some
of that equity to pay off credit cards or other revolving
debt, improve your home, help pay for college, or anything
else you can think of. The same is true of refinancing
costs: If you have enough equity in your home, you may
be able to roll some of the cash due at closing into
your loan.
Some of the "cash needed to close" as it's
sometimes called includes settlement costs and fees,
prepaid interest, escrow reserves, state or local government
charges, or even extra funds needed to pay off your existing
mortgage. Some or all of those costs can sometimes be
financed as part of your new mortgage loan.
But you have
to be careful. It's not always the case that you
can borrow up to 100 percent of your home's value. Many
loan programs are based on what's called a "loan-to-value" ratio.
You may qualify for a very advantageous refinanced mortgage
if you borrow no more than 80 percent of your home's
value, but may not qualify for the same terms if you
borrow 90 percent. We can help you qualify for refinance
loan programs for as much as 95 percent of your home's
value in most cases, but the lower your loan-to-value
ratio (that is, the less you borrow), the better terms
you'll generally qualify for.
The bottom line is that
in many cases you can reduce your up-front costs
for refinancing your mortgage in exchange for higher
monthly payments for the life of the loan. But whether,
and to what extent, you can do this depends on the value
of your home and the amount of your new mortgage, and
what options you decide are best for you.
If you've had
your current mortgage for a few years, chances are
you've built up enough equity to finance cash needed
to close and still have a smaller loan balance than your
original -- and a balance that will qualify you for
a favorable mortgage program tied to your loan-to-value
ratio. We can help you decide!
Many people find that
it's advantageous to pay the cash needed at closing
from checking, savings or money market accounts or from
other assets. This is because the less you borrow on
the new refinanced loan, the lower your monthly payment
will be. But we'll work with you to see if there is an
advantageous refinancing program for you based on your
ability and willingness to pay closing costs and other
fees and the amount you wish to borrow.
We want to make the best loan for you, work
for you!
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