Posted: Thu Apr 05, 2007 9:38 pm Post subject: mortgage refinance on a paid off home?
I have a home that is paid off and purchasing a townhouse. The bank suggested refinancing the current home which is paid off and has no mortgage at a 30 yr fixed rate to borrow the money to pay for the townhouse.
How could you refinance a mortgage on a home that has no mortgage? _________________ Need help choosing the right loan? Get free consultation from community lenders/consultant
Don't get caught up in the term used. From a loan officer's perspective you are either using a loan to purchase or refinance. Granted, it's inexact in your situation. What they are saying is to take out a mortgage on your free & clear home to purchase your new townhome. The better question is why?
First off, the question I'd have is this. Are you selling your existing home when you buy the townhome? If so, you are basically using it as a 'bridge' loan to bridge the gap between selling one and buying another. That's an ok strategy.
If not, then I don't see the point exactly. Ask your loan officer why they suggest that strategy, EXACTLY.
That's exactly what even I would like to know. I think Ken has given the right opinion here. It is better not to worry about the term. It's true that one cannot refinance a mortgage when it is actually paid off. And, why would you take a mortgage against a house which is free and clear of any lien. Instead, you can take out the loan against your new home.
Did you ask the lender and get it clarified from him? If not, then do it asap. And, before you sign any such documents, it is better to consult and then decide.
Thanks for the responses. Yes, I am selling the existing home a few months after purchasing the townhouse.
I did ask the lender but it was not exactly clear on the reasons, mainly the short term that I would need the loan since it would only be needed until I sell the exising home. I will ask the lender for better clarification. _________________ Need help choosing the right loan? Get free consultation from community lenders/consultant
There are several ways to look at refinancing or getting a new mortgage on existing paid off home:
1. Down payment.
The money needed to purchase new home will be all included in the 'cash out' on a new loan on the existing paid off home.
2. Qualifying. If the new home will be an investment or 2nd home the rate is usually higher due to the risk in 'the lender's eyes'. Getting a new loan on the existing home, if its your primary residence, the rate will be lower.
3. Cash Flow.
No need to cash out 401k's or use savings for the down payment.
kenstampe
