Equity Basics

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

The market value of your property changes over time, a factor that you cannot control.

The loans on your property can also change over time in size as you slowly pay them down.

Remember that if you are considering refinancing and you have very little equity you may also be stuck with a prepayment penalty that makes your refinance not very economical.

Refinance Options

There are several loan options left for borrowers who have little equity in their property.

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

A minimum payment option loan allows a borrower to make a less than interest only monthly payment. It is usually 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

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

Some lenders offer owners the opportunity to cash out up to 125% of the appraised value of the property.

This allows borrowers to go above the normal 100% appraisal value cap that most other refinance loans have.

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