In my fifth or sixth attempt to unleash the unknown about the mortgage industry, attempting to make you a better borrower, I tested my loan officers and found some areas that they didn't have complete knowledge. Therefore I know that you probably don't have sufficient knowledge either. So I begin with some easy situations and will move up from there.
Recasting a loan means changing the payment to reflect the new balance. This only happens in variable loans at the interval that is preset for their change in interest rate and amortization. If your variable changes each year then the new payment will reflect the new interest rate (can be no change) and the new number of months left in the loan before it is paid off (amortization). Fixed rates never recast because the interest rate doesn't change and therefore the payments remain constant during the entire life of the loan.
Interest only loans, even if they are part of a fixed loan, will recast when a principal payment is made during the interest only period. This makes interest only loans desirable for those who buy a house before they sell their current home . Once the current home is sold and the equity is used to pay down the interest only loan , the payment will reduce to reflect interest only on the new balance. When the interest only period is up , the remaining portion of the fixed loan will have a re casted payment based on the time left and the current balance even though the interest rate stays the same.
Seasoning a loan is very important in the mortgage industry. There are several instances where it comes into play: time since purchase, time since the property was listed and time since cash was taken out of the property. In prior years lenders would not allow a refinance using an appraisal that had a higher value than the purchase price during the first year. Most lenders have dropped that requirement but some still use the one year rule.
There are only a handful of lenders who will allow you to refinance a property the day after the property is taken off the market. The number is low if there isn't a prepayment penalty required. More will allow the refinance with a prepayment penalty to be sure you will be in the loan at least a year or more.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.
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