Refinance Mortgage Rates have dipped below four percent and many homeowners, including your neighbors, are doing whatever it takes to qualify. According to Freddie Mac doing whatever it takes often means bringing cash to the closing table. Nearly half of homeowners were paying down their mortgage balance at closing just to get approved last year. Here’s a great tip that can earn you an immediate return and help you qualify for the lowest refinance mortgage rates from today’s best mortgage lenders.
Earn 7% Cash Back from Mortgage Refinancing
How can you earn cash back from your home loan you ask? After all, interest bearing checking and savings accounts are earning you a big fat zero percent these days thanks to the Federal Reserve once you factor in the rate of inflation. Enter cash-in mortgage refinancing; a necessity for many homeowners with insufficient equity to get approved for traditional mortgage refinancing.
Cash-in mortgage refinancing is simply what it sounds like. You pay cash at closing, not to buy down your refinance mortgage rates like you are with discount points, but to pay down your home loan’s principal balance. The benefit of cash-in mortgage refinancing is twofold. First, by paying down your loan principle you’ll be able to qualify for mortgage refinancing where you couldn’t before. Second, you’re actually earning a return of 7.18 percent for each dollar you spend buying down your loan balance.
For every dollar you take from that zero percent earning checking or savings account and apply to your mortgage balance as part of cash-in mortgage refinancing, you won’t be paying interest on that dollar for the next fifteen to thirty years, which adds up quickly.
Factoring in today’s low refinance mortgage rates regardless of how much you owe, cash-in mortgage refinancing will save you $1.72 for every dollar you spend over the lifetime of your home loan.
That’s real cash in your pocket. You won’t get that rate of return from interest bearing savings accounts from any bank and there’s no risk. Most financial advisors will tell you to pay down your high-interest debt before investing and this is one instance where it clearly makes sense.
Beware Unnecessary Lender Fees
The problem with mortgage refinancing is that any benefit you gain from lower refinance mortgage rates is offset by closing costs like the loan origination fee. The more you pay at closing, including lender junk fees, the less your rate of return will be. It helps to calculate your break-even point before deciding if mortgage refinancing makes sense in your situation.
You can calculate how long it’s going to take to recoup your out-of-pocket expenses by adding up your total closing costs and dividing by how much your payment is going down. This tells you the number of months it’s going to take to break even and start earning that rate of return on your money.
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You can learn more strategies for lowering your closing costs and qualifying for the lowest refinance rates without leaving cash on the table by checking out my free Underground Mortgage Videos.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
