Tuesday, August 17, 2010
Borrowers Cashing In, Instead of Cashing Out
During the housing bubble many homeowners borrowed against the inflated value of their property. The multi-year spike in property value allowed borrowers to obtain loans secured against their homes to free up cash, a process known as cash-out refinancing. When the bubble collapsed, homeowners across the country were left with decimated property value. The fallout was especially bad for those engaging in cash-out refinancing, as most were left upside-down, owing far more than the post-crash value.
In the wake of the housing bubble collapse, it seems some borrowers have learned their lesson, as a new trend known as cash-in refinancing has emerged in direct contrast to the cash-out refinancing. Cash-in refinancing refers to borrowers putting more money down when buying real estate or refinancing a mortgage in order to boost equity in the properties and drive down interest rates on loans. Having a high enough percentage of equity in property also allows homeowners to avoid having to pay private mortgage insurance, as well as avoid "Jumbo" mortgage status which can significantly increase the interest rate on payments.
The growing popularity in cash-in refinancing may also stem from the low yield of interest on traditional investments like certificates of deposits. Borrowers may actually be saving money by putting more equity into property to lower their monthly mortgage payments and interest rates as opposed to leaving the money in a bank.
Cash-in refinancing can be an especially useful strategy in Florida, where the homestead property exemption provides virtually absolute coverage against forced sale to meet creditor's demands. In Florida, a homestead can have unlimited value for personal residences up to 1/2 acre within a municipality, and up to 160 acres outside a municipality. Property taxes, mortgages, and mechanics liens for work performed on the property are the only creditors that can cause a forced sale of a homestead property. Having higher equity in a homestead property is valid asset protection option for Floridians. Contact Yesner & Boss, P.L.a to discuss your asset protection plan today.