Posted by  on Apr 16, 2009
A refinance is considered cash-out when a borrower pays off other debts or advances money on top of their existing loan amount, while also changing the rate and term of the existing loan. It differs from a rate and term loan because the new loan amount is larger than the existing loan amount due to the additional cash taken with the new loan. If a borrower pays off credit cards or unrelated loans, or opens an equity line behind an existing mortgage, the new loan will be considered cash-out. Certain types of loans contain penalty clauses triggered by an early payment of the loan, either in its entirety or a specified portion. In addition, there are also closing and transaction fees typically associated with refinancing a loan or mortgage.

In some cases, these fees may outweigh any savings generated through refinancing the loan itself. Typically, one should only consider refinancing if one stands to save a substantial amount of money from doing so, either in the short or long-term, or if there is a need to extend the loan in order to pay for unexpected costs such as medical expenses. In addition, some refinanced loans, while having lower initial payments, may result in larger total interest costs over the life of the loan, or expose the borrower to greater risks than the existing loan, depending on the type of loan used to refinance the existing debt. Calculating the up-front, ongoing, and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance.

In some recent refinancing news, a recent analysis of U.S. real estate found vacancy rates in every property category dropped slightly, except the office sector, where vacancies declined even more. The analysis charts inventory, vacancies, delinquency rates on loan principal, and the outlook for six property types. Overall, progress has been incremental rather than dramatic. Most property types and regions are clearly rebounding, and others are still coping with problems.

The news was mixed for commercial loans, where delinquency rates fell to 6.3 percent for the first three quarters of 1993. Hotel delinquency rates dropped significantly to 11.3 percent for the first three quarters of 1993 from 15.1 percent for the full year of 1992, but are still high at 11.3 percent. Office delinquencies dropped to 8 percent from 8.9 percent the previous year and the multi-family delinquency rate fell to 4.7 percent from 5.9 percent, a significant reduction of an already low rate.

Retail and single family delinquency rates still hover around 5.4 percent and 2.7 percent, respectively. But industrial delinquencies, though still low, have risen nearly 30 percent to 4.9 percent from 3.8 percent in the previous year. The sharp rise reflects the heavy concentration of loans in California, the last place the recession hit and the area yet to show signs of recovery.

The retail sector remains in flux because retail itself is rapidly changing. Value retailers, who saw their share of the market balloon from eight percent of retail sales in 1981 to 35 percent in 1992, have captured retail sales shares from traditional department stores.


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