Now that you know the theory behind a tangible net benefit, the question then becomes what constitutes a benefit for the client. In this section, we’ll go over several ways a loan can pass the test.
Of course, any test reflects the examiner. Depending on the type of loan you’re getting, the applicable regulation could come from the state you reside in or a federal agency. In many cases, lenders such as Rocket Mortgage® have their own standards. Again, any lender worth giving your business won’t take advantage of you.
Moving From An ARM To A Fixed-Rate Mortgage
The first instance where refinancing would have a tangible net benefit would be switching from an adjustable rate mortgage (ARM) to a fixed-rate mortgage. The idea here is to get rate security, but to truly understand the benefit, let’s briefly touch on the mechanics of an ARM in comparison to a fixed-rate loan.
The benefit of ARMs is that they employ a concept called the teaser rate for a period – usually 5, 7 or 10 years – at the beginning of the loan term in which you can (likely) get a rate slightly lower than you could on a fixed-rate mortgage for the same 30-year term.
We say “likely” because there are rare instances such as the low-rate environment we find ourselves in now where fixed rates may be lower than the adjustable ones, but for the purposes of this article, let’s assume the rate is lower.
The reason investors can offer a lower interest rate is that once the teaser period is up, the rate can adjust based on an index added to a margin to be more in line with current market conditions. It can go up or down.
In the case that an ARM goes up, it can’t go up indefinitely as caps are built into the contract. There’s an initial adjustment cap and then a cap for each subsequent adjustment. Finally, there’s a lifetime cap. Here’s a quick example:
Let’s say you’re looking at a loan advertised as a 7/6 ARM 2/2/5. The first part means the rate stays fixed for the first 7 years of the term with adjustments every 6 months after that, denoted by the six.
The part after ARM is the caps. In this case, the rate can rise no more than 2% on the first adjustment and each subsequent yearly adjustment with a lifetime increase of no more than 5%. Most ARMs have 30-year terms.
In contrast, fixed rates are often slightly higher than the teaser rates on ARMs, but they remain fixed for the loan’s life. For this reason, it can be a benefit to refinance from an ARM into a fixed-rate mortgage even if the rate is slightly higher because of the certainty.
Reduced Monthly Payment
Another potential benefit is a lower monthly payment. This is great because it puts money back in your pocket every month that can be used for other things, whether that’s saving for retirement, a vacation or college fund, maintenance or another purpose.
Reduced Loan Interest Rate
If you have a lower interest rate, you’ll save money over time by paying less interest over the life of the loan. No one wants to give a lender more interest than necessary. Getting into a lower rate will always be beneficial if you can afford the monthly payment.
Reduced Loan Term
If you lower the number of years on your term, that’s a benefit even if the interest rate stays the same. This is because you’re going to pay off more principal faster to meet the shorter payoff time frame. Putting more toward principal means less toward interest.
There’s also the added benefit that shorter terms also tend to come with lower interest rates. The reason for this is that investors don’t have to project inflation as far in advance with shorter terms.
Cash-Out Benefits
Another potential benefit is the ability to convert your existing home equity into cash. This gives you the opportunity to do home improvements, pay for expenses like medical bills or start a business among other possibilities.
Debt Consolidation
You can use a cash-out refinance to pay off debts that have a higher interest rate than you’d get on your mortgage. The key to whether this is beneficial comes down to a simple calculation.
The refinance is considered beneficial for debt consolidation purposes if, after calculating your new payment when taking equity out, your mortgage payment is lower than the combined payments of any debts being paid off in the transaction. If this is the case, you have more residual income after the refinance and it’s considered beneficial.
A tangible net benefit (alternatively referred to as a “net tangible benefit”) can be thought of as the financial advantage a client gains by refinancing.
Tangible benefits are all those benefits that are quantifiable and measurable. Simply put, they are project benefits that can be assigned a monetary value, the number of labor hours, or other specific metrics. Therefore, the defining factor is whether a benefit includes measurable objective evidence.
Net Tangible Benefit. A loan that provides a net tangible benefit (NTB) means that it is in the financial interest of the Veteran. The following NTB standards are required under 38 U.S.C. 3709: (1) Fixed Rate to Fixed Rate IRRRLs.
The NTB test is satisfied if the new loan does one or more of the following. Eliminates monthly mortgage insurance. Shorter loan term. Lower interest rate.
The determining factor is whether a benefit includes measurable objective evidence. For example, while it may appear that customer satisfaction is intangible, the fact that it can be measured by calculating repeat business rates, customer turnover and evaluating customer complaint data makes it a tangible benefit.
These rewards are tangible and easily measurable, such as money, bonuses, promotions, and benefits. For example, receiving a salary, health insurance, and a retirement plan from an employer are all extrinsic rewards that provide tangible benefits to an employee in return for their work and contribution.
A second common output measure from B/C analysis is a project Net Benefit. Net Benefit is determined by summing all benefits and subtracting the sum of all costs of a project. This output provides an absolute measure of benefits (total dollars), rather than the relative measures provided by B/C ratio.
Intangible benefits and costs are those that one cannot or chooses not to put a price on in an explicit fashion, e.g., the value of wilderness or increased “sense of community.”
For all cash-out refinances paying off an existing VA loan seasoning certification is required. The number of days from closing of loan being refinanced and loan closing of new loan will auto-calculate and cannot be less than 210 (days) or the guaranty will not be issued.
What's the net worth limit to be eligible for Veterans Pension benefits? From December 1, 2023, to November 30, 2024, the net worth limit to be eligible for Veterans Pension benefits is $155,356. On October 18, 2018, we changed the way we assess net worth to make the pension entitlement rules clearer.
A VA-backed cash-out refinance loan may help you to:
Take cash out of your home equity to pay off debt, pay for school, make home improvements, or take care of other needs, or. Refinance a non-VA loan into a VA-backed loan.
The Department of Veterans Affairs (VA) Cash-Out Refinance Loan is for homeowners who want to trade equity for cash from their home. These loans can be used as strictly cash at closing, to payoff debt, make home improvements, and pay off liens.
Once you determine the value of all your assets and the size of all your liabilities, you can use the formula (Tangible Net Worth = Total Assets - Total Liabilities - Intangible Assets) to determine your tangible net worth.
Something that's literally tangible can be touched. A rock is tangible, and so is a broken window; if the rock is lying next to the window, it could be tangible evidence of vandalism. When we say that the tension in a room is tangible, we mean we feel it so strongly that it seems almost physical.
The tangible benefits are measured directly; these benefits are like quality, profitability, and performance of the derived products. The intangible benefits cannot be measured in terms of product metrics; these benefits include customer satisfaction and professional satisfaction.
Tangible rewards are rewards that an employer or manager gives an employee to recognize and thank them for a job well done. They are given as motivation and are contingent on desired outcomes being achieved.
Tangible rewards are rewards that can be seen and quantified—such as vouchers, cash bonuses, a pay rise, company merchandise, or gift cards. By contrast, intangible rewards are those that are invisible but also meaningful—for instance, public praise from a manager, an extra day off, or a thank you note.
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Introduction: My name is Maia Crooks Jr, I am a homely, joyous, shiny, successful, hilarious, thoughtful, joyous person who loves writing and wants to share my knowledge and understanding with you.
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