Low Mortgage Rates Help Texas Homeowners Refinance and Save
By: Vanessa Rodriguez
August 19th 2010 (FreeRateUpdate.com) – As current mortgage rates sustain record lows, Texas homeowners refinance and save money on their home mortgages by taking advantage of historic rates. Jason Paul, loan officer at AmCap Mortgage of Houston, Texas, comments, “[We are] absolutely seeing a significant rise in applications for refinances because mortgage rates are so low.” 30-year fixed conforming and FHA rates remain at 4% for well-qualified borrowers. According to the Mortgage Banks Association, refinance applications increased by 17 percent last week, which caused a surge of 13 percent in overall mortgage applications.
There are two primary different refinance options for homeowners: cash-out and cash-in. A cash-out refinance allows homeowners to take out additional cash above the amount of the existing mortgage. The funds can be used toward debt consolidation, pay-off junior liens, such as home equity lines of credit, home improvements, or even a child’s college education. According to Paul, Texans must consider how a cash-out refinance will affect title. He says, “Cash-out refi’s are subject to section 50 (a) 6 of Texas Law.” This law not only governs the amount of lendable equity, but also, as Paul adds, “… there are different caveats.”
In Texas, a homeowner cannot refinance his primary residence for a year from the date of recording an A6 loan, as cash-outs are affectionately referred to by loan officers. The law stipulates that a borrower must receive notice of his or her rights and the loan cannot close sooner than 12 calendar days from when notice is received. A home cannot have more than one A6 loan at a time. Texas A6 loans are also limited to total mortgage financing of maximum 80 percent of the home’s value. Finally, “In Texas, once an equity loan always an equity loan,” says Paul, “if you wanted to go into a normal mortgage, you would always use equity guidelines.”
Another refinancing option is the cash-in refinance. A cash-in refinance requires homeowners to bring in cash to pay down principal on an existing mortgage. Cash-in refinances are gaining in popularity. Paul says, “Now interest rates are at historic lows, we are absolutely seeing a positive trend.” Freddie Mac reports cash-ins accounted for one-third of refinances on Freddie-owned loans during the last quarter of 2009. Homeowners are investing their money into their mortgages. Cash-ins allows homeowners to pay down their mortgage debt and take advantage of low interest rates.
“In Texas,” Paul says, “[a cash-in refinance] is known as a rate and term refi.” These allow borrowers to reduce their mortgage term, such as from a 30-year to a 20-year or 15-year term. It can also allow borrowers to stop paying private-mortgage insurance, which is required if the mortgage is greater than 80 percent of the home’s value. These loans may also be beneficial for jumbo mortgage borrowers by lowering a mortgage under the conforming loan limit, which is $417,000 for a majority of housing markets.
Every week mortgage rates seem to set new historic lows. The time for refinance is tricky to determine. An important factor to consider, however, is a borrower’s breakeven point. To determine the breakeven point, analyze the potential monthly savings at the current mortgage rate against the total cost to refinance. For example, a refinance costs $5,000 and monthly savings amounts to $100. Divide the refinance cost of $5,000 by the monthly savings of $100, which is 50 months. This means that if a homeowner plans to reside in the house for longer than the breakeven point of 4 years, then refinancing the property at the current rate is a good decision. Nevertheless, it is best to discuss refinancing options with professional mortgage bankers.
Although high unemployment rates have curtailed mortgage refinances nationwide, Texas is an exception as it experiences positive job growth. Doctors Ali Anari and Mark G. Dotzour from the Real Estate Center at Texas A&M University report, “The growth rate from June 2009 to June 2010 was 0.9 percent [in Texas] compared with a rate of –0.1 percent for the nation.” The strong economic recovery in Texas helps fuel homeowner interest in mortgage refinancing. Jason Paul from AmCap Mortgage in Houston, Texas, agrees, “We are definitely seeing a refinance boom.”