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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.
Reasons to Refinance
1. Lower the rate
2. Shorten the term
3. Take cash out of the equity
4. Combine loans
5. Remove a person from a loan
We're constantly bombarded by lenders to refinance our mortgage under a variety of programs. The volume of offers can almost make you numb to the rational consideration.
There are common rules of thumbs that homeowners and agents use such as not refinancing more often than every two years or there must be at least 2% savings from your previous mortgage rate may not always be accurate.
The reality is that if you can refinance for a lower rate and you'll be in the home long enough to recapture the cost of refinancing, it should be considered. The costs of previous refinancing that haven't been recaptured by monthly savings may need to be added to the costs of the new refinance.
Take a look at the chart that shows the average rates according to Freddie Mac for 2012. They are lower today than they were in January of 2012 and for the ten years before that.
Refinancing may save you a substantial amount of money, especially if you're going to be in your home for a long time. It is definitely worth investigating. To get a quick idea of what your savings could be, use this refinancing calculator.
Whether you're refinancing your current home or buying a new one, something worth considering is a 15 year loan rather than a 30 year term. The payments will be a little higher but you'll get a lower interest rate and you'll build equity much faster.
Let's look at an example of a $200,000 mortgage with the choice of a 30 year term with a 3.75% rate compared to a 15 year term with a 2.875% rate. The payments would be $442.94 higher on the shorter term but the equity would be considerably higher even after you adjust for the higher payments.
Another benefit is that the shorter term loan creates a forced savings situation where the savings on a longer term loan might end up being spent rather than being saved and invested. Contact me if you'd like a recommendation of a trusted lender.
Both GSEs have posted details of the program modifications and procedural changes on their respective business sites for mortgage servicers to follow (Fannie’s,Freddie’s).
Among the key program revisions, the GSEs have eliminated or raised the loan-to-value (LTV) cap, and relaxed representation and warranty stipulations – changes that officials expect to at least double the number of homeowners with a HARP-refinanced mortgage. Since the program was launched in 2009, just under 900,000 borrowers have participated.
Negative equity typically excludes a homeowner from refinancing through traditional channels. Removing previous LTV ceilings will allow homeowners who are severely underwater due to plummeting property values to take out new loans at today’s lower interest rates. There are, however, some LTV conditions depending on loan type.
There are no LTV restrictions for fixed-rate mortgages with terms up to 30 years, including those with terms of 15 years.
For fixed-rate loans with terms between 30 and 40 years,LTV is limited to 105 percent. Likewise, a 105 percent LTVcap has been placed on adjustable-rate mortgages (ARMs) with initial fixed periods of five years or more and terms up to 40 years.
Any borrower with an LTV ratio below 80 percent is not eligible for HARP.
As previously announced, across the board, the original mortgage must have been sold to Fannie or Freddie prior to April 1, 2009.
In the October notice announcing their intent to modifyHARP to increase participation, the GSEs said they would “waive certain representations and warranties” on loans refinanced through the program. Analysts said at the time
that depending on what exceptions would be made, such a move could spark increased competition among lenders to refinance borrowers through HARP.
In Tuesday’s guidance, the GSEs provided specifics on which liabilities would be lifted and noted that the rep and warranty adjustment is one of the most important components of the new program.
The lender will not be responsible for any of the representations and warranties associated with the original loan.
The lender is also relieved of the standard underwriting representations and warranties with respect to the new mortgage loan as long as the data in the case file is complete and program instructions are followed for collecting information on income, employment, assets, and fieldwork.
The lender is not required to make any representation or warranty as to value, marketability, or condition of the subject property unless they obtain a new appraisal.
Lenders will, however, be held accountable for any fraudulent activities.
Administration officials are hoping that eliminating the risk associated with reps and warranties – whether transferred from the original loan or on the new loan – will spark healthy competition among lenders to help homeowners get into the program. And Fannie and Freddie are making it easier for the competition to flourish.
The GSEs are modifying their policies to allow lenders to solicit borrowers with Fannie- and Freddie-owned mortgages for a refinance. The only condition is that the lender “simultaneously applies the same advertising and solicitation activities” to borrowers of both GSEs, and for loans both owned or securitized by the GSEs.
In the new guidelines, the GSEs detail specific language that must be included in any borrower solicitation material.
Regarding program eligibility as it relates to delinquencies, the borrower must not have been behind on their payments at all within the most recent six-month period, and had no more than one 30-day delinquency within the last year.
The GSEs are also removing the requirement that the borrower (on the new loan) meet the standard waiting period following a bankruptcy or foreclosure. The requirement that the original loan must have met the bankruptcy and foreclosure policies in effect at the time the loan was originated is also being removed.
The new HARP program has been extended through December 31, 2013.