How Does A Mortgage Refinance Works, What Do You Need To Know First?

How Does A Mortgage Refinance Work, What Do You Need To Know First?

You the first thing that we need to get a good view of is your existing situation. What is the value of your home? What do your existing mortgage? And other debts look like. How much equity do you need to take out? We can see from your estimation and from my complimentary home valuation report.

How To Calculate A Home Equity Takeout And Consolidation

That your value is $385,000, we can also see based on the information that you submitted from your online mortgage application. That your existing mortgage amount is $240,000.00. This mortgage has an interest rate of 3.79% a 25-year amortization and 1 year left remaining. In the term or 12 months, there's a monthly payment here of $1235. You have a car loan of $20,00 at 5.99% with 4 years left remaining, in the loan at $470 per month. You also have $16000 of credit card debt averaging 20%. 

And if it took you 3 years to pay it off, it would be at least $594 per month. There's a total monthly payment here of $2299. The main questions we need to ask at this point are is there enough equity in your home to pay off your existing mortgage and your other debts to determine this.

How Does A Mortgage Refinance Works, What Do You Need To Know First?
How Does A Mortgage Refinance Works, What Do You Need To Know First?


We first look at the value of the house. Which we know to be $385,000, then we take 80% of the property value, because 8% is the maximum amount. We can usually go up to in a first mortgage. Which in this case is $308,800 given that $308,000 is the maximum mortgage amount on the home's value.


Pay Off The Existing Mortgage

The next step is to pay off the existing mortgage of $240,000. Because we can't have two first mortgages on the house at the same time. Next, after the existing mortgage is paid off by the new mortgage we look at, how much is left over which? In this case, is $68,000 in home equity. $308,800 of our new mortgage - $240,000 of the existing mortgage is $68,000.

How Does A Mortgage Refinance Works, What Do You Need To Know First?
How Does A Mortgage Refinance Works, What Do You Need To Know First?

We can use this $68,000 excess to pay off the vehicle and credit card debts of $36,000. Summarize we've taken out the maximum mortgage. The $385,000 value which is $308,800 paid off the existing mortgage and all other debts. And we can see that we have an additional $32,000 remaining in equity to use. The main point here is that there's more than enough equity to do this refinance and debt consolidation. This example can be used as a step-by-step guide or a template to go off for any kind of refinance and equity takes out.


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