Posted on: 24th Oct, 2007 06:41 am
Can some explain me what is net tangible benefit, is that something related to refiancing a negative amortized loan, please advice
net tangible benefit in a refinance is the determination of how much better the new mortgage a client recieves is as compared to the one he has.
example if i offer to refinance your 8% adjustable mortgage to a 7% fixed mortgage with no closing costs its a high net tangible benefit loan because you getting rate reduction, fixed rate and no closing costs. now if i refinance your 8% fixed mortgage into a 7% adjustable mortgage with standard closing costs your net tangible benefit will be less.
most of the time this has only value for the specific borrower and is hard to determine.
example if i offer to refinance your 8% adjustable mortgage to a 7% fixed mortgage with no closing costs its a high net tangible benefit loan because you getting rate reduction, fixed rate and no closing costs. now if i refinance your 8% fixed mortgage into a 7% adjustable mortgage with standard closing costs your net tangible benefit will be less.
most of the time this has only value for the specific borrower and is hard to determine.
And it is different for all lenders. Some may require more benefit than others and they don't always allow the customer to make this decision for themselves.
There is a very legitimate reason for this rule and it is this... It is to prevent mortgage companies from refinancing borrowers just to generate a fee. If the loan has no "net tangible benefit" then you can't do the loan, it is as simple as that.
There is a very legitimate reason for this rule and it is this... It is to prevent mortgage companies from refinancing borrowers just to generate a fee. If the loan has no "net tangible benefit" then you can't do the loan, it is as simple as that.
