What If I Don't Have Enough Equity?

Equity Basics

The difference between the market value of the property and the amount of loans you have on the property is the equity in your property.

A factor that you cannot control is the market value of your property, which changes over time.

As you slowly pay them down, the loans on your property can also change over time in size.

Remember, if you are considering refinancing and you don’t have much equity, you may also be trapped with a prepayment penalty that makes your refinance not very economical.

Refinance Options

There are a number of loan options left for borrowers who have little equity in their property.

If the borrower wants a severe reduction in their monthly payment several lenders are now offering minimum payment option loans up to 100% of the value of the property. These loan types were restricted to 90% or 95% of the value of the property in the past.

A minimum payment option loan allows a borrower to make a monthly payment that is less than interest only. It is typically much lower than a regular monthly payment. It may result in negative amortization – check the terms of the specific loan you are considering.

Cashing Out

You may still have the option to get cash even if you have little equity in your property.

Quantities of lenders offer owners the chance to cash out up to 125% of the appraised value of the property.

This allows borrowers to go higher than the normal 100% appraisal value cap that the majority of other refinance loans have.

This loan type is generally a full documentation loan which means the borrower may need to disclose and document employment, income, assets, and other items.