December 4, 2024 • 23 mins
Refinancing can be a game-changer for borrowers, but how do you effectively structure a refinance and communicate its value? In this episode of Loan Officer Training, we break down the steps to crafting a winning refinance strategy that aligns with your client's goals.
Discover how to calculate savings, highlight benefits like lower monthly payments, reduced interest rates, or access to cash for other financial needs. We'll also explore how to address common borrower concerns and present refinancing options in a way that's clear, relatable, and actionable.
If you want to confidently guide your clients through the refinance process and build lasting trust, this episode is packed with insights you can’t afford to miss.
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Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording Dec 04, (00:00):
So, um, basically we all know what a
refinance is here.
We're talking about a refinanceof a real estate loan, right?
On a property.
Now, What would be the keyreasons to refinance a real
estate loan?
These are just general reasons.
And then we're going to get alittle bit more into it, but key
(00:21):
reasons to refinance or a realestate loan would be, uh, to
lower interest rate would beone.
Reduce the monthly paymentswould be another and remember
lowering, uh, reducing themonthly payment isn't
necessarily aligned withlowering the interest rate
because, uh, when we're talkingabout monthly payments, we're
(00:43):
not necessarily just talkingabout the monthly payment on the
real estate loan.
We could be talking about themonthly payments, uh, the
borrower's monthly outlay,right?
The, what they pay out on all oftheir debt.
The borrower may want to accesshome equity or they may want to
(01:03):
consolidate debt.
Right?
So those are some of the morepopular reasons.
Why borrower may want torefinance now, if this is
probably the most importantpoint that we're going to make
in, in today's training, and Istate this because, um, just
(01:27):
yesterday I was in our livesupport, uh, zoom room, uh,
giving some, uh, quote structureassistance to one of our team
members.
And excuse me.
And he, uh, was trying tostructure some loans, some
quotes.
To send to a borrower.
(01:47):
And I asked him, you know, Imean, we know the borrower wants
access to money.
That's that's why they want todo this cash out refinance.
But have you spoken with aborrower and asked them, uh,
What is the objective of therefinance?
What are they actually trying toachieve here?
(02:13):
Um, and, um, yeah, the, um, the,our team member had spoken with
the borrower, confirmed theborrower wanted to cash out
refi, talk to the borrower aboutthe property, their income, I
mean, their credit, all thatgood stuff, but didn't ask them
what was the purpose of the cashout?
(02:33):
Why?
You know, what was theborrower's objective with the
money?
Right?
What was he trying to do?
Was he trying to buy anotherinvestment property?
Was he trying to consolidatedebt?
What, you know, what was thepurpose?
Because if we don't really knowthe purpose, Of the cash out
refinance.
(02:54):
It's going to be difficult forus to determine the borrower's
motivation, uh, for thedifferent options that we're
going to, to send.
And then it's going to bedifficult for us to explain the
benefit of the cash outrefinance, which it was in this
case, a cash out refinance, if,um, the borrower hasn't told us
(03:17):
what they're going to use themoney for.
All we know is they want money.
So definitely you, when you arespeaking with the borrower, you
definitely want to confirm, uh,what it is that they're going to
use the money for, right?
Because, uh, refinancing makessense.
(03:39):
Like I have stated there,refinancing makes sense.
When it aligns with theborrower's specific financial
goals and circumstances, and Ihave that there in red catches
your eye because, you know, ifwe knew, for example, this
borrower, um, is hot and heavyfor a property, they need the
(04:03):
money.
They really aren't so concernedoverall with the interest rates
on the cash out.
They're more concerned with howmuch can I get?
I need to get the most possiblebecause I need to make sure that
I get, um, 300, 000 cash onhand.
So I have money for the downpayment, closing costs, or maybe
(04:25):
they want to buy the otherproperty outright.
Cash so we we don't know whatthe scenario may be.
Uh, so, you know, we definitelygot to confirm that point
because, um, some of the, uh,scenarios that you see, there
are the interest rates may havedropped borrow may want to lower
(04:45):
his interest rate.
Um, maybe the borrower's creditscore is improved and now he
wants to take advantage of hisimproved credit score to get,
uh, maybe a better rate on the,uh, or rate and term or cash
out.
Um, there could be a change intheir financial situation,
(05:05):
right?
There is, there may, there maybe a family emergency.
Uh, somebody's hospitalized.
They need a couple hundredthousand dollars for medical
expenses.
Um, uh, somebody died and theyneed money to bury them.
I mean, I've actually had thatsituation, um, here where I'm at
in South Florida.
(05:27):
We get a lot of people that arefrom other countries and all of
a sudden they get the phonecall, your, your grandmother
just died.
We don't have any money to buryher.
Can you please help?
Right.
I mean, that's actually happenedon a few deals that I can speak
up.
Maybe they're looking toeventually be able to retire and
(05:51):
they want to pay the house offat some point.
And they want to reduce the loanterm from a 30 to a two from a
30 year to a 20 year from a 30year to a 15 year.
Or maybe they want to pay offhigh interest rate consumer
credit.
Right.
Whereas.
That could be a 25, 28 percentinterest rate.
(06:13):
So they may not be so concernedthat they're refinancing into a
higher interest rate than theycurrently have.
If they're being able to resolvetheir financial situation of
paying off high interest rate.
Consumer credit.
So many different reasons whyagain, uh, a borrower, we want
(06:36):
to refinance either as a rateand term refinance, which is
only to reduce the interest rateor as a cash out refinance,
which is the option that wehave.
That's going to give them cashabove and beyond what they owe
on their property.
But again, it all goes back towhen you're having that call,
that initial phone call, andyou're just, you're assessing
(06:58):
the deal, make sure that you askall the necessary questions,
including when it's a refinance,what is the purpose?
You know, what are you going touse the proceeds?
If it's a cash out refinance forwhat's going to be the purpose
of the proceeds.
So now once we do, uh, have afirm grip on their situation and
(07:22):
why they're wanting torefinance, then that's going to
make it.
a lot easier and much moreeffective for us to analyze the
benefits from the transaction,right?
Now, some of these are going tobe pretty obvious and some a
little bit less obvious, but youknow, it's always good to dot
(07:44):
your I's and cross your T's,right?
So, uh, first section we havethere is lower the interest
rates.
Now, when you lower the interestrates, There are certain things
that are going to occur.
Obviously, you're going to havea, you know, reduce monthly
payments.
Um, if you lower the interestnet now, um, that again, lower
(08:05):
interest rates could be you're,you're going to have one rate on
everything, for example,consolidating debt.
But I'm going to jump, I'mjumping a little bit there, but
assuming we're only low, onlylooking at the payment on the
home.
Right?
Well, lower interest rate isgoing to give you reduced
monthly payment.
It's going to give you, this issomething that, uh, a lot of
(08:28):
MLOs may not bring up.
But this is very important too.
It's going to give you a morefavorable loan amortization
because when you do reduce theinterest rate on a loan, the
amortization table is going tochange.
The amortization table, uh,details, the breakdown of a
(08:48):
payment.
Of principle to interest, right?
You could have a 1, 000 paymenton a loan.
Let's say, you know, 8 percentthat could be 125 principle and
600.
Interest and the same loanamount at a 5% interest rate.
(09:14):
And these are not exact numbers,this is just illustrative
purposes.
Could be paying$200 principaland um, you know,$500 interest,
whereas you could have maybeonly a 50 or$75 reduction or a
hundred dollars reduction in theoverall payment.
But then when you go to theamortization table and you
(09:37):
analyze how much is going toprinciple and how much is going
to interest, They could beamortizing more principal within
that same payment amount, whichis an additional benefit.
So if you're only noting the netbenefit, which is the difference
in the overall payment fromprior to refi, To post refi and
(10:02):
you're not also bringing up theamortization benefit, then
you're leaving money on thetable, so to speak, because
you're not fully explaining thebenefits of having a lower
interest rate to the borrower.
So this is a very important onethat I can tell you.
Probably not many loan officersare speaking to their borrower
about, and if you are one of theMLOs that does bring up this
(10:26):
part of the, uh, Benefit, you'regoing to have an upper hand.
And obviously this is all goingto lead to long term savings
overall.
So you're going to note the netbenefit on the payment, the
amortization table benefit,you're going to be paying that
much less interest and that muchmore principal within each
(10:49):
payment, and then the long termsavings.
So that covers lower interestrates.
Now, debt consolidation, whichis combining high interest rate
debts like credit cards into onelower interest rate loan.
And in this case, the lowerinterest rate loan we're talking
about is the residentialmortgage loan.
(11:13):
Debt consolidation is a verygood reason.
To do a cash out refinance,because like I mentioned
earlier, those credit cardinterest rates could be 25, 28
percent interest, uh, percentversus, uh, currently on the
residential side, you could begetting anywhere from the upper,
upper fives to the lower sevensfor like an FHA, USDA, VA, or
(11:39):
conventional type loan, and evenfor some non QM options as well.
So, you definitely want to bringup, uh, the reduced monthly
payment benefit, right?
You're gonna list, here's thetotal of your payments.
Uh, here's your current housingexpense.
And this is, uh, the total ofyour consumer credit and you're
(12:02):
paying for it.
5, 000 a month, uh, versus maybethey're going to be at 3, 000 a
month on the new one.
Obviously, it's probably goingto be a higher payment than
their current housing payment,but we're looking at the net
benefit here in terms of reducedmonthly payments.
overall to the borrower.
Now, one additional benefitthat, uh, most MLOs leave out
(12:26):
when discussing debtconsolidation is the fact that
consumer credit interest, uh, isno longer a tax deductible
expense and has not been a taxdeductible expense for quite a
few years now.
You used to be able to writeoff, uh, consumer credit.
interest, but now you cannot.
(12:48):
Whereas the interest from yourresidential mortgage, whether
it's a first mortgage or asecond mortgage or third
mortgage, anything tied to your,to the property is tax
deductible.
Any, you know, the interest onthat loan is tax deductible.
So that's an additional benefitwhere you're going to bring up,
right?
So assuming they pay in, theywere paying.
(13:12):
Uh, 6, 000 in interest on thosecredit cards, getting no benefit
for it.
And now they're going to have anewer, higher payment and the
interest amount that, um,pertains to that new loan that
pertains to the new loan, uh,um, the increase in the loan.
(13:33):
So let's say they were at 200,000 before now they're at 300,
000.
So they're paying a hundredthousand, you know, they got a
hundred thousand more loan,whatever interest.
That they're paying on that loanis the additional interest
expense tax deduction thatyou're going to have on their
cash return.
So assuming it's an extra 2, 000or 2, 500.
(13:57):
an interest that you multiplythat times their, um, their tax
bracket and that's the benefitthat they get for additional tax
deductions, right?
So if they're paying an extra 2,500 in interest a year now, uh,
and they're in the 30 percenttax bracket, they're getting an
(14:19):
extra 750 tax write off in theend of the year.
So that's an extra benefitthere.
Okay.
Above and beyond the reductionin the monthly payment is the
additional tax deductions thatthey get.
Um, next category there isshortening the loan term.
(14:39):
Well, we already talked aboutthe amortization table when you
go from a 30 year to a 15 year.
Your payment is usually going togo up.
The interest rate may go down,but you know, right now the
shorter terms really are notthat much lower than the longer
term due to the fact that westill have an inverted yield
(15:01):
curve, meaning the short termrates are actually higher than
the midterm rates and verysimilar.
An interest rate to the longterm rates by short term.
I mean, stuff less than 1 yearis similar in interest to, you
know, 15 and 30 year.
Uh, so, but, uh, when youanalyze the, the breakdown of
(15:23):
the payment, a 15 year loanterm, pretty much pays almost 50
percent of the interest.
principal and 50 percentinterest within the payment.
So you're going to have a,you're going to be amortizing a
lot more principal within thepayment and paying a lot less
(15:44):
interest.
And then last but not least,they may, uh, when they need to
access home equity, they justneed money.
They need money from the home.
Um, that money from the homecould be for a needed
renovation.
It could be for investments thatthey want to do.
(16:05):
Maybe they want to buy anotherproperty or need to buy some
stocks or whatever.
Or they just need the moneybecause they have an emergency,
right?
I mentioned a sick family,hospitalization, whatever may be
the emergency that they need.
But you need to, again, thisgoes back to understanding the
objective.
Um, because, you know,explaining the benefits Of an
(16:26):
emergency is just I'm going toget you the money, right?
They need the money.
You just got to find a way toget them the amount of money
that they need.
Obviously, we always want toprovide the best rate option for
the borrowers.
We have great rates at themortgage calculator, but in this
case, um, when they want toaccess at home equity, they're
(16:47):
usually giving you a target,right?
I need 250, 000 and you need tocome up with, uh, an action
plan.
That's going to get them.
250, 000.
Whether it be for a renovationthat they need to do, whether it
be for investment, or whether itbe for an emergency need for
(17:08):
funds.
So, um, this, uh, completes the,uh, PowerPoint presentation, but
I want to know if there's anyquestions, uh, from, uh, our
viewers today regarding, uh,refinances.
It doesn't necessarily have tobe about what I went over here.
(17:29):
If you have any questions ingeneral about refinances, but
definitely if you have anyquestions about, uh, how do you
analyze and explain the benefitsof refinance, I would love to
answer them.
All right, I got a questionhere.
So, uh, Marcy wants to know, cana reason for refinance be to
(17:51):
remove a person from the loandue to a divorce if the home is
awarded to one of the parties?
Yeah, that would be buying out.
Uh, a current owner, right?
So that I, I guess that wouldbe, uh, one of those life, uh,
event situations, uh, that Iwould probably consider
(18:14):
emergency need for funds, right?
We have those, uh, actuallyevery now and then, right?
Somebody's or, and, and we alsohave, uh, refinance where not
necessarily, they're notnecessarily buying.
Somebody out due to a divorce orjust buying them out, you know,
like, uh, we have one right nowthat, um, borrowers inherited
the property.
(18:35):
Uh, via life estate deed, uh,cause the parent, the surviving
parent died.
They had a life estate deed andnow three siblings own the
property and one sibling wantsto buy out the other two
siblings.
So you would do a cash out refiand buy out the interest of the
(18:55):
other two siblings.
So I would probably considerthat under the emergency need
for funds category.
Uh, we have another questionhere.
Uh, does a refinance affect theproperty tax?
Uh, no, it does not.
The, the, the tax amount, uh,tax assessment, you know, the
(19:16):
tax amount on a property isbased.
On the properties taxassessment, right?
Whatever the tax assessor hasthe property listed for and
public records.
Uh, the assessed value is goingto be multiplied by the millage
rate.
And that's how you come up withthe property tax bill.
Uh, refinancing a propertydoesn't affect anything in the
(19:39):
tax assessment, nor doesrefinancing a property, the
proceeds.
If it's a cash out, refi are nottaxable income.
At some point when the propertyis sold, if there is a, if
there's a profit, there may be atax liability due depending on
if it's a primary residence andor an investment property, but
(20:01):
that's really going to be basedon the cost basis for the
property, which is going to bethe price you paid for the
property plus any money you'vespent on upgrades and repairs.
It's not, the profit is notgoing to be based on, uh, what
you currently owe, uh, for theIRS.
What you owe, uh, could havebeen, um, affected by you doing
(20:25):
a cash out refi, so that now youowe a lot less, you're going to
get a lot less proceeds atclosing, but the proceeds you
get at closing isn't necessarilythe profit, because the profit
is going to be the cost basis,which is purchase price, plus
repairs on the property, youknow, improvements, uh, and then
(20:45):
you get the purchase, the newpurchase price, assuming it's
higher, the new sales price,assuming it's higher, Then the
cost basis minus the cost basisequals the profit, and that's
what they pay taxes on.
All right.
Good questions.
Any more questions out there?
All right.
So it looks like we're good togo on today's training.
(21:07):
I look forward to seeing you alltomorrow.
Thank you and have a great day.
So, um, basically we all know what a
refinance is here.
We're talking about a refinanceof a real estate loan, right?
On a property.
Now, What would be the keyreasons to refinance a real
estate loan?
These are just general reasons.
And then we're going to get alittle bit more into it, but key
(00:21):
reasons to refinance or a realestate loan would be, uh, to
lower interest rate would beone.
Reduce the monthly paymentswould be another and remember
lowering, uh, reducing themonthly payment isn't
necessarily aligned withlowering the interest rate
because, uh, when we're talkingabout monthly payments, we're
(00:43):
not necessarily just talkingabout the monthly payment on the
real estate loan.
We could be talking about themonthly payments, uh, the
borrower's monthly outlay,right?
The, what they pay out on all oftheir debt.
The borrower may want to accesshome equity or they may want to
(01:03):
consolidate debt.
Right?
So those are some of the morepopular reasons.
Why borrower may want torefinance now, if this is
probably the most importantpoint that we're going to make
in, in today's training, and Istate this because, um, just
(01:27):
yesterday I was in our livesupport, uh, zoom room, uh,
giving some, uh, quote structureassistance to one of our team
members.
And excuse me.
And he, uh, was trying tostructure some loans, some
quotes.
To send to a borrower.
(01:47):
And I asked him, you know, Imean, we know the borrower wants
access to money.
That's that's why they want todo this cash out refinance.
But have you spoken with aborrower and asked them, uh,
What is the objective of therefinance?
What are they actually trying toachieve here?
(02:13):
Um, and, um, yeah, the, um, the,our team member had spoken with
the borrower, confirmed theborrower wanted to cash out
refi, talk to the borrower aboutthe property, their income, I
mean, their credit, all thatgood stuff, but didn't ask them
what was the purpose of the cashout?
(02:33):
Why?
You know, what was theborrower's objective with the
money?
Right?
What was he trying to do?
Was he trying to buy anotherinvestment property?
Was he trying to consolidatedebt?
What, you know, what was thepurpose?
Because if we don't really knowthe purpose, Of the cash out
refinance.
(02:54):
It's going to be difficult forus to determine the borrower's
motivation, uh, for thedifferent options that we're
going to, to send.
And then it's going to bedifficult for us to explain the
benefit of the cash outrefinance, which it was in this
case, a cash out refinance, if,um, the borrower hasn't told us
(03:17):
what they're going to use themoney for.
All we know is they want money.
So definitely you, when you arespeaking with the borrower, you
definitely want to confirm, uh,what it is that they're going to
use the money for, right?
Because, uh, refinancing makessense.
(03:39):
Like I have stated there,refinancing makes sense.
When it aligns with theborrower's specific financial
goals and circumstances, and Ihave that there in red catches
your eye because, you know, ifwe knew, for example, this
borrower, um, is hot and heavyfor a property, they need the
(04:03):
money.
They really aren't so concernedoverall with the interest rates
on the cash out.
They're more concerned with howmuch can I get?
I need to get the most possiblebecause I need to make sure that
I get, um, 300, 000 cash onhand.
So I have money for the downpayment, closing costs, or maybe
(04:25):
they want to buy the otherproperty outright.
Cash so we we don't know whatthe scenario may be.
Uh, so, you know, we definitelygot to confirm that point
because, um, some of the, uh,scenarios that you see, there
are the interest rates may havedropped borrow may want to lower
(04:45):
his interest rate.
Um, maybe the borrower's creditscore is improved and now he
wants to take advantage of hisimproved credit score to get,
uh, maybe a better rate on the,uh, or rate and term or cash
out.
Um, there could be a change intheir financial situation,
(05:05):
right?
There is, there may, there maybe a family emergency.
Uh, somebody's hospitalized.
They need a couple hundredthousand dollars for medical
expenses.
Um, uh, somebody died and theyneed money to bury them.
I mean, I've actually had thatsituation, um, here where I'm at
in South Florida.
(05:27):
We get a lot of people that arefrom other countries and all of
a sudden they get the phonecall, your, your grandmother
just died.
We don't have any money to buryher.
Can you please help?
Right.
I mean, that's actually happenedon a few deals that I can speak
up.
Maybe they're looking toeventually be able to retire and
(05:51):
they want to pay the house offat some point.
And they want to reduce the loanterm from a 30 to a two from a
30 year to a 20 year from a 30year to a 15 year.
Or maybe they want to pay offhigh interest rate consumer
credit.
Right.
Whereas.
That could be a 25, 28 percentinterest rate.
(06:13):
So they may not be so concernedthat they're refinancing into a
higher interest rate than theycurrently have.
If they're being able to resolvetheir financial situation of
paying off high interest rate.
Consumer credit.
So many different reasons whyagain, uh, a borrower, we want
(06:36):
to refinance either as a rateand term refinance, which is
only to reduce the interest rateor as a cash out refinance,
which is the option that wehave.
That's going to give them cashabove and beyond what they owe
on their property.
But again, it all goes back towhen you're having that call,
that initial phone call, andyou're just, you're assessing
(06:58):
the deal, make sure that you askall the necessary questions,
including when it's a refinance,what is the purpose?
You know, what are you going touse the proceeds?
If it's a cash out refinance forwhat's going to be the purpose
of the proceeds.
So now once we do, uh, have afirm grip on their situation and
(07:22):
why they're wanting torefinance, then that's going to
make it.
a lot easier and much moreeffective for us to analyze the
benefits from the transaction,right?
Now, some of these are going tobe pretty obvious and some a
little bit less obvious, but youknow, it's always good to dot
(07:44):
your I's and cross your T's,right?
So, uh, first section we havethere is lower the interest
rates.
Now, when you lower the interestrates, There are certain things
that are going to occur.
Obviously, you're going to havea, you know, reduce monthly
payments.
Um, if you lower the interestnet now, um, that again, lower
(08:05):
interest rates could be you're,you're going to have one rate on
everything, for example,consolidating debt.
But I'm going to jump, I'mjumping a little bit there, but
assuming we're only low, onlylooking at the payment on the
home.
Right?
Well, lower interest rate isgoing to give you reduced
monthly payment.
It's going to give you, this issomething that, uh, a lot of
(08:28):
MLOs may not bring up.
But this is very important too.
It's going to give you a morefavorable loan amortization
because when you do reduce theinterest rate on a loan, the
amortization table is going tochange.
The amortization table, uh,details, the breakdown of a
(08:48):
payment.
Of principle to interest, right?
You could have a 1, 000 paymenton a loan.
Let's say, you know, 8 percentthat could be 125 principle and
600.
Interest and the same loanamount at a 5% interest rate.
(09:14):
And these are not exact numbers,this is just illustrative
purposes.
Could be paying$200 principaland um, you know,$500 interest,
whereas you could have maybeonly a 50 or$75 reduction or a
hundred dollars reduction in theoverall payment.
But then when you go to theamortization table and you
(09:37):
analyze how much is going toprinciple and how much is going
to interest, They could beamortizing more principal within
that same payment amount, whichis an additional benefit.
So if you're only noting the netbenefit, which is the difference
in the overall payment fromprior to refi, To post refi and
(10:02):
you're not also bringing up theamortization benefit, then
you're leaving money on thetable, so to speak, because
you're not fully explaining thebenefits of having a lower
interest rate to the borrower.
So this is a very important onethat I can tell you.
Probably not many loan officersare speaking to their borrower
about, and if you are one of theMLOs that does bring up this
(10:26):
part of the, uh, Benefit, you'regoing to have an upper hand.
And obviously this is all goingto lead to long term savings
overall.
So you're going to note the netbenefit on the payment, the
amortization table benefit,you're going to be paying that
much less interest and that muchmore principal within each
(10:49):
payment, and then the long termsavings.
So that covers lower interestrates.
Now, debt consolidation, whichis combining high interest rate
debts like credit cards into onelower interest rate loan.
And in this case, the lowerinterest rate loan we're talking
about is the residentialmortgage loan.
(11:13):
Debt consolidation is a verygood reason.
To do a cash out refinance,because like I mentioned
earlier, those credit cardinterest rates could be 25, 28
percent interest, uh, percentversus, uh, currently on the
residential side, you could begetting anywhere from the upper,
upper fives to the lower sevensfor like an FHA, USDA, VA, or
(11:39):
conventional type loan, and evenfor some non QM options as well.
So, you definitely want to bringup, uh, the reduced monthly
payment benefit, right?
You're gonna list, here's thetotal of your payments.
Uh, here's your current housingexpense.
And this is, uh, the total ofyour consumer credit and you're
(12:02):
paying for it.
5, 000 a month, uh, versus maybethey're going to be at 3, 000 a
month on the new one.
Obviously, it's probably goingto be a higher payment than
their current housing payment,but we're looking at the net
benefit here in terms of reducedmonthly payments.
overall to the borrower.
Now, one additional benefitthat, uh, most MLOs leave out
(12:26):
when discussing debtconsolidation is the fact that
consumer credit interest, uh, isno longer a tax deductible
expense and has not been a taxdeductible expense for quite a
few years now.
You used to be able to writeoff, uh, consumer credit.
interest, but now you cannot.
(12:48):
Whereas the interest from yourresidential mortgage, whether
it's a first mortgage or asecond mortgage or third
mortgage, anything tied to your,to the property is tax
deductible.
Any, you know, the interest onthat loan is tax deductible.
So that's an additional benefitwhere you're going to bring up,
right?
So assuming they pay in, theywere paying.
(13:12):
Uh, 6, 000 in interest on thosecredit cards, getting no benefit
for it.
And now they're going to have anewer, higher payment and the
interest amount that, um,pertains to that new loan that
pertains to the new loan, uh,um, the increase in the loan.
(13:33):
So let's say they were at 200,000 before now they're at 300,
000.
So they're paying a hundredthousand, you know, they got a
hundred thousand more loan,whatever interest.
That they're paying on that loanis the additional interest
expense tax deduction thatyou're going to have on their
cash return.
So assuming it's an extra 2, 000or 2, 500.
(13:57):
an interest that you multiplythat times their, um, their tax
bracket and that's the benefitthat they get for additional tax
deductions, right?
So if they're paying an extra 2,500 in interest a year now, uh,
and they're in the 30 percenttax bracket, they're getting an
(14:19):
extra 750 tax write off in theend of the year.
So that's an extra benefitthere.
Okay.
Above and beyond the reductionin the monthly payment is the
additional tax deductions thatthey get.
Um, next category there isshortening the loan term.
(14:39):
Well, we already talked aboutthe amortization table when you
go from a 30 year to a 15 year.
Your payment is usually going togo up.
The interest rate may go down,but you know, right now the
shorter terms really are notthat much lower than the longer
term due to the fact that westill have an inverted yield
(15:01):
curve, meaning the short termrates are actually higher than
the midterm rates and verysimilar.
An interest rate to the longterm rates by short term.
I mean, stuff less than 1 yearis similar in interest to, you
know, 15 and 30 year.
Uh, so, but, uh, when youanalyze the, the breakdown of
(15:23):
the payment, a 15 year loanterm, pretty much pays almost 50
percent of the interest.
principal and 50 percentinterest within the payment.
So you're going to have a,you're going to be amortizing a
lot more principal within thepayment and paying a lot less
(15:44):
interest.
And then last but not least,they may, uh, when they need to
access home equity, they justneed money.
They need money from the home.
Um, that money from the homecould be for a needed
renovation.
It could be for investments thatthey want to do.
(16:05):
Maybe they want to buy anotherproperty or need to buy some
stocks or whatever.
Or they just need the moneybecause they have an emergency,
right?
I mentioned a sick family,hospitalization, whatever may be
the emergency that they need.
But you need to, again, thisgoes back to understanding the
objective.
Um, because, you know,explaining the benefits Of an
(16:26):
emergency is just I'm going toget you the money, right?
They need the money.
You just got to find a way toget them the amount of money
that they need.
Obviously, we always want toprovide the best rate option for
the borrowers.
We have great rates at themortgage calculator, but in this
case, um, when they want toaccess at home equity, they're
(16:47):
usually giving you a target,right?
I need 250, 000 and you need tocome up with, uh, an action
plan.
That's going to get them.
250, 000.
Whether it be for a renovationthat they need to do, whether it
be for investment, or whether itbe for an emergency need for
(17:08):
funds.
So, um, this, uh, completes the,uh, PowerPoint presentation, but
I want to know if there's anyquestions, uh, from, uh, our
viewers today regarding, uh,refinances.
It doesn't necessarily have tobe about what I went over here.
(17:29):
If you have any questions ingeneral about refinances, but
definitely if you have anyquestions about, uh, how do you
analyze and explain the benefitsof refinance, I would love to
answer them.
All right, I got a questionhere.
So, uh, Marcy wants to know, cana reason for refinance be to
(17:51):
remove a person from the loandue to a divorce if the home is
awarded to one of the parties?
Yeah, that would be buying out.
Uh, a current owner, right?
So that I, I guess that wouldbe, uh, one of those life, uh,
event situations, uh, that Iwould probably consider
(18:14):
emergency need for funds, right?
We have those, uh, actuallyevery now and then, right?
Somebody's or, and, and we alsohave, uh, refinance where not
necessarily, they're notnecessarily buying.
Somebody out due to a divorce orjust buying them out, you know,
like, uh, we have one right nowthat, um, borrowers inherited
the property.
(18:35):
Uh, via life estate deed, uh,cause the parent, the surviving
parent died.
They had a life estate deed andnow three siblings own the
property and one sibling wantsto buy out the other two
siblings.
So you would do a cash out refiand buy out the interest of the
(18:55):
other two siblings.
So I would probably considerthat under the emergency need
for funds category.
Uh, we have another questionhere.
Uh, does a refinance affect theproperty tax?
Uh, no, it does not.
The, the, the tax amount, uh,tax assessment, you know, the
(19:16):
tax amount on a property isbased.
On the properties taxassessment, right?
Whatever the tax assessor hasthe property listed for and
public records.
Uh, the assessed value is goingto be multiplied by the millage
rate.
And that's how you come up withthe property tax bill.
Uh, refinancing a propertydoesn't affect anything in the
(19:39):
tax assessment, nor doesrefinancing a property, the
proceeds.
If it's a cash out, refi are nottaxable income.
At some point when the propertyis sold, if there is a, if
there's a profit, there may be atax liability due depending on
if it's a primary residence andor an investment property, but
(20:01):
that's really going to be basedon the cost basis for the
property, which is going to bethe price you paid for the
property plus any money you'vespent on upgrades and repairs.
It's not, the profit is notgoing to be based on, uh, what
you currently owe, uh, for theIRS.
What you owe, uh, could havebeen, um, affected by you doing
(20:25):
a cash out refi, so that now youowe a lot less, you're going to
get a lot less proceeds atclosing, but the proceeds you
get at closing isn't necessarilythe profit, because the profit
is going to be the cost basis,which is purchase price, plus
repairs on the property, youknow, improvements, uh, and then
(20:45):
you get the purchase, the newpurchase price, assuming it's
higher, the new sales price,assuming it's higher, Then the
cost basis minus the cost basisequals the profit, and that's
what they pay taxes on.
All right.
Good questions.
Any more questions out there?
All right.
So it looks like we're good togo on today's training.
(21:07):
I look forward to seeing you alltomorrow.
Thank you and have a great day.
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