A large share of mortgage refinancing takes place so the homeowner can withdraw some of their equity. Basically, the person owning the home wants to use it as a source of cash.
You bought a $500,000 house 15 years ago. You put $100,000 down and got a 30-year mortgage for the remaining $400,000, with an interest rate of 7%. Now it's 15 years later and you've accumulated $150,000 in equity in the home. A typical refinancing might see you take out that $150,000. You'd get a new 30-year loan, covering the entire $400,000 borrowed against the house. You'd get a check for $150,000 (minus any fees), and now you have 30 years left to pay off the new loan.
A no cash-out refinance doesn't involve taking out the $150,000. The main reason to conduct this form of deal is to take advantage of lower rates.
Rates have fallen over the past decade and a half, and now you can get a mortgage with a 5.5% rate. Your original mortgage has 15 years left to run with a 7% rate...with $250,000 in principal remaining. You'd save money getting your rate down to 5.5%. So you run a no cash-out refinance. You get a 15-year mortgage for the $250,000 left remaining, with a new interest rate of 5.5%. You original bank gets paid back and you end up with lower monthly payments. And you still only have 15 years left on the loan.
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Finance: What is a Reverse Mortgage?6 Views
Finance allah shmoop What is a reverse mortgage All right
people let's start with a normal mortgage You put one
hundred grand down borrow three hundred grand and are the
proud new owner of this baby in palo alto california
You make payments for thirty years at five percent interest
and then you retire their debt free So that's a
mortgage but what's a reverse mortgage Like one of these
egg trump Well kind of at least financially the payments
go in the opposite direction of a normal mortgage Like
you're old you just want to live out your remaining
years with the basic comforts Shower seats stair lift high
absorption adult diapers You own all of your home No
mortgage on it You paid it all off The home
is now worth a million box Nice shoebox There you
can do a reverse mortgage pledging your home is an
asset and basically just receiving a payment of l say
five grand a month from that reverse mortgage and you'll
get to deduct interest costs as you go Justus if
it were a normal mortgage well after forty months you
you know croak in that time period you've taken out
Forty times five grand or two hundred grand in loans
plus some interest and you sell your home for a
cool million Rather your heirs dio So what happens now
Well they just take the million bucks from the sale
write a check for two hundred grand and change to
the bank to pay off the reverse mortgage that you
had accrued while you were you know wasting away to
nothing and your heirs end up happy like they miss
you But you know a free stair lift Who are 00:01:37.997 --> [endTime] you