Avoid Extra High Mortgage Financing Costs


While it is true that real estate property buyers and owners looking to refinance their mortgages want to avoid extra high financing costs, the question of how to avoid such costs and what action(s) one must take in order to to so. What costs are considered extra high? And when might a borrower find him/herself in a position to be chartged extra high financing costs in today’s – years AFTER the subprime mortgage era – real estate mortgage market?

You may or may not know that there are ways for you to pay less while you own more, but taking yourself out of a certain high-cost category may be another thing entirely. If you know exactly how to work within the real estate arena, then you can probably find ways to avoid extra financing costs being tacked on to your purchase or refinance mortgage.

For example, if you’re an investor, finding the right area to focus on for your investment can be an important element in paying lower amounts without extra charges. If you’re not an investor but you’re seeking mortgage financing for the first time or you wish to re-mortgage a home you already own, the work you do BEFORE signing a mortgage application will determine what kind of mortgage you obtain and at what costs.

One of the easiest ways to avoid extra costs is to make sure that you make your monthly payments on time. Usually, mortgage companies will add extra charges (late charge penalties) if you don’t pay by the date they have set for you. Over a period of time – if you continue to pay late – this can result in hundreds of extra dollars in extra costs at one time. Staying ahead and consistent will help you to keep costs stable and lower. But this is one of the easily identified extra costs which is similarly easy to avoid paying.

What about other charges you can be hit with? Like pre-payment penalties, discount points, origination fees (which are also considered points by most attorneys), warehousing fees, a higher-than-prevailing interest rate at closing, a longer-than-necessary loan term (30 years when you qualify for 15 years can cost tens of thousands of dollars, if not hundreds of thousands), getting locked (or talked) into a FHA mortgage when a conventional mortgage would be a better, more affordable mortgage loan (FHA rates are usually 1/2 percent higher than conventional and you’ll have to pay the MIP which is non-existent on a 80% LTV conventional mortgage).

So of course, knowing the mortgage financing options that are available to you can certainly help you to avoid extra high financing costs. Some homes will require that you invest more, and some loan programs will also ask that you invest a higher amount out-of-pocket, but this is not necessarily a bad thing. For example, if you are able to make a down paymwent of 20 percent of the home selling price, you immediately eliminate any kind of mortgage insurance (MIP AND PMI), making your monthly payment lower by those amounts.

As long as you put youself in a position to determine the type of financing that would be beneficial to you in the short term, and even more importantly, the long term – which is where many mortgage borrowers fail to spend enough time planning for – the decisions you make will be informed and thus guide your selection of a mortgage loan that will best suit your situation.

Keep in mind that until you commit to a mortgage type, you always have the choice of looking into a different type of mortgage program. The type of program that you decide upon for your mortgages will make a huge difference in how much you pay overall and how much you pay each month.

The finances don’t stand alone when you are trying to avoid extra costs. The value of the property that you are investing in will also make a difference. The goal for any real estate investment is a high quality home for a lower price. You want to get as close to this goal as you can. Even if you pay on the home for a while, it will allow you to benefit later on with the investment that you have made. You will have the ability to have more equity returned to you when you decide to invest in something bigger and better.


Real estate financing can be beneficial if you approach it correctly. Understanding how all the parts of your loan, your home and your individual needs work together can help you to find the best deal. Over time, you will not only have a home to live in, but will also have an investment that can help you to make the most of what you have. That is, of course, if you are buying a home to live in and not one to buy and flip in a short period, in which case your approach to buying real estate has to be totally different although the goal of avoiding extra high costs is the same.

Understanding The Cash-Out Refinance


What is a Cash-Out refinance?

A cash-out refinance enables homeowner to remortgage their home for an amount greater than the exiting mortgage balance. Once the new mortgage is approved and a mortgage closing takes place, the homeowner then begins to make repayments on the new higher amount over the course of a new term. In other words, this cash-out refinance results in a brand new mortgage for the homeowner with new interest rate, new term and new payments. So the reason for refinancing should be a good one and the reason for taking cash-out should be as good or better.

When is a Cash-Out Refinance possible?

A homeowner can apply and, most likely get an approval for a cash-out refinance when there is enough existing equity in the home (for a FHA refi, at least 85% of the property’s appraised value must cover the existing mortgage, closing costs and the amount of any check written to the homeowner. For a conventional refi it’s 80%). This is important because the lender is able to justify the approval of increased funds to the homeowner due to the value of the property. Every lender must have security and collateral for every mortgage, and the cash-out refinance is no different.

Homeowners who wish to take advantage of a cash-out refinance offered by a lender should inquire as to whether or not the lender offers this type of refinancing. This is important because not all lenders offer this option. It should actually be one of the first questions the homeowner asks when inquiring about refinance programs. Doing so will save homeowners, who are seeking a cash-out refinance, a great deal of time.

How Can the Cash be Used?

For many homeowners the most appealing aspect of cash-out re-financing is that the additional funds can be used for any reasonable project or undertaking the homeowner wishes to accomplish. The lender will require an explanation (most likely in affidavit form for FHA mortgages) of how the cash-out money will be used.

It has to make sense to the lender and must also be in accordance with refinance mortgage guidelines set by both conventional and the FHA. Most homeowners would probably not refinance their homes and use the cash to gamble in las vegas or Atlantic City, but in the circumstance where there is one or two who might need cash-out refinance funds to gamble with, they would have to look elsewhere because they wouldn’t get it from a mortgage lender.

That having been said, most homeowners I’ve dealt with during my years as a mortgage lender representative had very practical reasons for wanting a cash-out refinance, and in my opinion that hasn’t changed with homeowners wanting to refinance today.

Of course, getting approved for a cash-out refinance is more of a challenge for today’s homeowners due to the loss of equity and underwater mortgages many have suffered as a result of the subprime mortgage crises. Those who have enough equity for cash-out refinancing will be wise to use the funds in a judicious manner. Some of the popular uses for funds received from cash-out refinancing include:

  • Home Improvement Projects
  • Home Renovations
  • Child’s College Education
  • Hospital/Health-related Bills
  • Mortgage Debt Consolidation
  • Credit Debt Consolidation

There are probably a few more, but all the reasons listed above are excellent uses of a cash-out refinance that a lender would certainly approve your cash-out refinance for. Homeowners who are considering this type of a refinancing option should also consider whether or not the closing costs and other expenses related to the loan are tax deductible.

Using the cash-out option to make home improvements is jus one example of a situation where the funds can be tax deductible. Homeowners should consult their tax professional on the matter to determine whether or not they are able to deduct the interest from the repayment of their refinance mortgage.

An Example of a cash-out Refinance

The process of a cash-out refinance is fairly simple to explain. Consider a homeowner who purchases a home and borrows $150,000 at a rate 7% interest to complete the purchase. Now consider the homeowner has already repaid $50000 of the loan and would like to borrow an additional $20,000 to make a rather large purchase or pay off some credit cards. With this additional funding available the homeowner has an opportunity to use the equity in their home to reduce credit card debt thereby increasing their monthly cash-flow.


In the example above the homeowner may refinance for a total of $120,000 at a lower interest rate such as 6.25%. This process allow the homeowner to take advantage of the existing equity in their home and also allows him/her to qualify for a substantial loan at a great rate AND get rid of credit card debt.

The 30 Year Fixed Rate Mortgage – Still Your Best Option?


During my years as a real estate broker and mortgage lender representative, the 30 year fixed rate mortgage was the best option for most first time home buyers, and in many cases, home owners who were refinancing. This was true for a number of reasons, most important of which, was the lower monthly payments based on a longer term. The 30 year fixed rate mortgage was, at that time, the most popular FHA-insured mortgage type and FHA mortgages were the mortgage of choice in most markets where I did business.

However, the 30 year fixed rate mortgage was also the first choice of most conventional borrowers for some of the same reasons. The total payments were spread over a longer period of time with the interest rate set for the entire term of the mortgage. That having been said, is the 30 year mortgage still an industry standard, and does it meet the specific needs of today’s mortgage borrower? Since your financing needs are, in many cases, very unique you may wish to choose a different mortgage type.

There have been many changes in the real estate and mortgage market over the last 4 years – brought on primarily by the subprime mortgage meltdown – but even if the 30 year home loan is still an industry standard, is it the right choice for you? The answer to this question will depend on a couple of factors. If, for example, you intend to sell your home within a 5 to 7 year period it may be best to take advantage of the lower rate 5 or 7 year ARM (Adjustable Rate Mortgage) because since the total payments on a 30 year mortgage are spread over a longer period of time and the interest rate set for the entire time of the mortgage, the interest rate carried on it is higher than that on an ARM.

As we mentioned, the plus side for a 30 year home loan is lower monthly payments. This attraction is somewhat dimmed by the fact that you pay $1000s extra in interest; But, your interest is 100% tax deductible (unless the US Congress changes this feature as they may be contemplating) which does lower your after-tax cost.

It offers you some flexibility so that if your financial situation changes and you have more money you can pay it off in less than 30 years, this while keeping the low monthly payments. Your payments are smaller so, in reality, you can purchase a larger roomier home. To show an example of the interest difference between 30 year home loan rates and one of the other mortgage types.

On a 30 year, 250,000 dollar loan using 4.5% interest rate your monthly payment of interest and principle would be $1,266.71; But over the next 30 years you will have paid approximately $337,500 in interest alone. Now with a 15 year home loan rate on the same amount, but a lower 15 year rate of 3.5%, you will pay $1,787.21 (principal & interest) per month and over the next 15 term, you would pay $131,250 in interest which would save you approximately $206,250 dollars.

Those numbers suggest that, if you have the will power to invest the savings gained from the lower (30 year mortgage) monthly payments, it still could be a good choice to go with the 30 year mortgage. Especially if you can find an investment that the long term payoff matches or exceeds what you would save in a 15 year mortgage. Another factor to consider is how fast you want to accrue equity in your home or to own it outright. 30 year mortgage loans take much longer for you to build equity.

The 30 mortgage is certainly attractive, and the vast majority of home buyers opted for 30-year loans based on everything that was already said; And although there have been discussion about a 35 or 40 year mortgage, and some lenders have adopted these longer term mortgages, they were never as popular as the 30 year mortgage.

However, there are still many other mortgage financing options to consider, and probably the biggest question you have to ask yourself when considering a mortgage loan is what are your financial goals? What loan plan will help you the most to reach that goal? It is clearly to your advantage to look into other home financing options for the best mortgage available for you and will best accomplish your financial goals. It may surprise you that, because of your personal situation, other plans may be more suitable for you.