Rate Games: Squeeze Out Cash and Save Money

Whether you own a single-family residence, or a two, three or four family property you have more opportunities at your disposal than you think. With higher loan amounts for conforming loans and rates that are still at historic lows, there is a triangle of benefits you can grab for yourself. Lowering monthly payment, reducing term (or payback time), and getting cash.

Reduce your monthly payment for better cash flow. Single-family to four-family homeowners who have jumbo loans can save money every month by moving the loan balance into a rate that is between .25% and .375% lower than current jumbo rates. This money can then be used for a savings or investment plan, or for an even faster pay-off of the mortgage. Depending upon the rate of jumbo loans at the time you originally took out the loan, your rate savings may be even greater than .375%. You won't know until you investigate with a mortgage professional.
Reduce your term while keeping your payments the same. This is a great strategy if you plan to hold onto the property until you pay it off completely. It's entirely possible to reduce the payback period of your loan, and save many thousands of dollars by doing so. For example, a 30-year mortgage with a balance of $332,000 at a rate of 6.875% has a monthly payment of $2,181. Let's assume this loan was taken out 2 years ago. If this balance is refinanced to a 20-year mortgage at the current rate of 5.25%, the payment will be $2237 per month. The payment, essentially, remains the same. However, by cutting off 10 years, you will save $209,000 over the term of the loan. Whenever rates move downward, this opportunity becomes available. Again, this works for one through four- family property.
Get cash out of your property while keeping payments the same. A good strategy for squeezing some extra cash out of your property. There is no specific formula to figure how much cash you can get. This will depend upon the difference between your current mortgage rate and the rate of the new program you choose. Add to this the amount of cash you're seeking, and your overall strategy for the property…well, you can see how challenging it is to figure this out. For example, your current 30-year mortgage has a balance of $205,000 and a rate of 6.5% with a monthly payment of $1296. Let's say you're planning to sell the property in 2 or 3 years and you want to get cash for improvements, but don't want your payments to increase under a new program. I would recommend a 3/1 Intermediate ARM program to get a current rate of 3.875% to maximize the cash you can get. If you borrow $275,000 you'll receive $70,000 in cash as a result of the refinance. The monthly payment will be $1293 (fixed for the next 3 years before it adjusts) so you've stayed within your payment guideline while getting the cash you want.
Get cash, lower your monthly payment AND reduce your payback period. This possibility exists when you are paying a relatively high rate. Maybe your credit wasn't the greatest when you went for mortgage financing last time, but you've made your mortgage and other bill payments on time. You may be in an excellent position to benefit in all three ways. Though rare, there are still some who fit this description. [Two simple words…call me!]

It is amazing that rates are as low as they are for as long as they have been. Look at a possible play for yourself to see if the benefits highlighted above are available to you.

Mark Atkinson is a partner in A&M Mortgage Solutions, a mortgage resource for those buying, selling or refinancing real estate. He can be reached by phone at (860) 350-8400. E-mail at Info@AM-Consult.com.