Refinance to Remove a Person

Most people are familiar with the various reasons a homeowner refinances their home which generally result in two major benefits: saving interest and building equity.

There is however another reason to refinance which may not be as common which is to remove a person from the loan. In the case of a divorce, when one party wants to keep the home and the other party wants their equity out of the home, it is possible for the remaining party to refinance the home. If the equity is sufficient to justify it and the remaining owner can qualify for the new loan, the refinance can provide the proceeds to buy out the other spouse.

Refinancing to remove a person from the loan could also involve a situation where two or more heirs jointly own a property and have differing opinions on when to sell. The same situation could apply to a rental property with multiple owners and the refinance would provide a way to buy out a partner.

Sometimes, it’s not about taking cash out of the home to buy out the other party. If a person’s name is on the mortgage, they’re responsible if it goes to default. One party may be willing to deed the home to the other party but it doesn’t necessarily relieve them of the liability of the mortgage they originated.

Many times, once a person has made their mind to move on, they’ll take the fastest and easiest way out. Removing a person from the deed or a mortgage is a reason to consider obtaining legal advice to protect your interests. Refinance Analysis calculator.

Originally Posted at: Lafayette Real Estate News

 

Who’s Paying Your Mortgage?

As a homeowner, you obviously pay for your mortgage but as an investor, your investor, your tenant does.  Equity build-up is a significant benefit of mortgaged rental property.  As the investor, collects rent and pays expenses, the principal amount of the loan is reduced which increases the equity in the property.  Over time, the tenant pays for the property to the benefit of the investor.

Equity build-up occurs with normal amortization as the loan is paid down.  It can be accelerated by making additional contributions to the principal each month along with the normal payment.  Some investors consider this a good use of the cash flows because interest rates on savings accounts and certificates of deposits are much lower than their mortgage rate.

In the example below, is a hypothetical rental with a purchase price of $125,000 with 80% loan-to-value mortgage at 4.5% for 30 years compared to a 3.5% for 15 years.  The acquisition costs were estimated at $3,000, the monthly rent is estimated at $1,250 and $4,800 for operating expenses.

Notice that both properties have a positive cash flow before tax.  The cash on cash return is the revenue less expenses including debt service divided by the initial investment to acquire the property.  The 15 year mortgage will obviously have a smaller cash flow and lower cash on cash but the equity build-up is significantly higher.

If the goal of the investor is to pay off the property to provide the highest possible cash flow at a later date, a shorter term mortgage with a lower interest rate will help them achieve that.  A simple definition of an investment is to put away today so you’ll have more tomorrow.  Sacrificing cash flow now, during an investor’s earning years, is a reasonable expectation to provide more cash flow in the future when it might be needed more.

Contact me if you’d like to explore rental property opportunities.

 

Originally Posted at: Lafayette Real Estate News

Cheri Savini is a ten year Real Estate Agent and just won the award for Best of Trulia’Top Agent Award–CONGRATS!! She is primarily a listing agent and works on an official team with Debbie her Buyer’s Agent/Partner. Out of 100 agents in her office, Cheri is #2 in Production! I enjoyed a wonderful conversation and hope to get to know Cheri better in the future. 

Started my Team Meeting and Monday Morning with this quote that I think speaks volumes. Our plan didn’t quite work last year, so we changed it and so far, we have seen great results. Here is to another week of GREAT SUCCESS!!

 

Buying vs. Renting Comparison

The chart below shows a cost comparison for a renter and a homeowner over a seven year period.

The renter starts out paying $800 per month with annual increases of 5% The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000.

After 6 years, the homeowner’s payment is lower than the renter’s monthly payment.

With the tax savings of homeownership, the homeowner’s payment is less than the rental payment after 3 years

 

Originally Posted at: Lafayette Real Estate News