I own a home along with three other family members. I am kept in the dark about a lot of things to do with our mutual finances (long story, and not a good one!). We purchased this house in 1983 for about $150,000, and put $45,000 down on a 30-year mortgage at a very high rate of about 13%. In 1993 we refinanced at something like 6.50% for a period of 15 years. The property had appreciated greatly in value, to at least $250,000. Our monthly payments stayed the same and we cut five years off the life of the loan. I briefly saw the paperwork and it seems like we may have been owed money after the closing. Could this be in any way correct? Do people ever make money when they refinance?
I didn’t expect any money, nor did I receive any. And I know refinancing isn’t the same as a second mortgage or home equity loan, those are things that would give us cash in hand. In refinancing, I always thought just getting a better rate, and in this case, a shorter term, was reason enough. But something about those papers is niggling at me (they are not in my possession). Could we have somehow come out of a refinancing deal with extra money? I’ll appreciate any help in putting my overactive imagination to rest!
You don’t get cash in-hand after a refinancing. Any extra cash is present as equity in the property.
What you do generally get are lower monthly payments. If you were used to the higher payments you may decide to stick with that thus shortening the term of your loan and putting more equity into the house. If not, you should have ‘extra’ money just by virtue of not having to write as big of a check each month.
Thing to keep in mind with refi’ing is that you are paying off your mortage in full. The bank that you owe money to is getting paid by the new bank that you are refi’ing with. (they can be the same bank) This is why you can be turned down for a refi. It is the same process and risk that happens when you apply for the home loan in the first place.
It sounds like you have a LOT of equity in this home. Refi’ing doesn’t change this. If you owe 100K on a 400K house, then you refi to get a better rate on the 100K you owe. The 300K of equity is still waiting there to be cashed in, unless you refi with cash out.
Even if the refinance did not have a cash-out, you could have gotten money back. If the old mortgage had an escrow (money you paid to the mortgage company to cover insurance and real estate taxes), then when the old mortgage is paid off, they have to pay you whatever remains in the escrow account.
Ratato is right. Instead of the old mortgage company transferring the esrow account over, they usually handle it through you, the refinancier. When we recently refinanced, our new company had us pay in the same amount of escrow (for taxes) that had been in the escrow account. This was built into the overall amount of the loan, so it’s not like we sent them a check for a coupla of thousand bucks. Anyway, once all the paperwork was completed and our old mortgage company was paid off by the new mortgage company, the old mortgage company sent us what was in the escrow account.
That depends on the contract of the loan. Some loans have early payoff penalties and some don’t. When getting my mortgage I specifically asked and insisted that there be no early payoff penalty.
Of course, refinancing itself usually costs money. When I recently refinanced the finance company would have charged us nearly $2,000 for the pleasure but in the interests of getting our business they reduced that charge to $300 (IIRC). We didn’t even ask for that…they came right out fo the gate with that offer. Of course, YMMV.
As I was reading the original post bells and sirens were going off in my head. It sounds like you are being taken for a ride. When the value of your house goes up you may definitely refinance it for more than the original purchase price. If this was done and you did not recieve your share of this cash you then you have been cheated. This is the only reason I can think of for your not receiving a copy of the paperwork. You must have signed papers when the refinancing took place and you should have been given a copy of everything you signed (or made your own copy).
I suggest you see a lawyer. If you don’t want to take such a step at this point at least go to the county courthouse and get a copy of the trust deed that was filed at the time the refinancing was done and it will tell you the total amount of the new loan – this is a public record and will not cost you a dime to see it. You should also verify that you are listed as an owner and your percentage ownership is correct.
As I was reading the original post, bells and sirens were going off in my head; it sounds like you are being taken for a ride. When the value of your house goes up you may definitely refinance it for more than the original loan amount or even for more that the original purchase price. If this was done and you did not recieve your share of this cash you then you have been cheated. This is the only reason I can think of for your not receiving a copy of the paperwork. You must have signed papers when the refinancing took place and you should have been given a copy of everything you signed (or made your own copy thereof).
I suggest you see a lawyer. If you don’t want to take such a step at this point at least go to the county courthouse and get a copy of the trust deed that was filed at the time the refinancing was done and it will tell you the total amount of the new loan – this is a public record and will not cost you a dime to see it. You should also verify that you are listed as an owner and your percentage ownership is correct.
Note to moderator: Please remove my post of 5:13 pm. After posting it I got a screen saying the server could not be found and therefore assumed it was not posted. I also made some edits in the mean time.