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Refinancing?
Look Beyond Banks for the Lowest Rate
By Shel Franco
Take the case of Claire Herrmann of Swampscott, Mass., and her mother, Eleanor. By refinancing through an intra-family mortgage, Claire was able to lower her rate by 1.2 percent, which will amount to $33,549 in interest savings over the life of the loan. Eleanor, on the other hand, increased her yield by nearly 1 percent by making the loan to Claire with funds taken from an under-performing money market account.
"It turns out that we both benefited," Herrmann says. "I'm paying a lower rate on my mortgage and my mom's getting a higher yield than her money market."
Whether an intra-family mortgage is being used to refinance the entire mortgage or just a portion, the key is to set it up right. Venezia points out that in addition to drawing up standard Fannie Mae mortgage documentation and handling the recording with the county, CircleLending will structure a payment schedule based on the terms provided and manage the entire repayment process including keeping track of interest and principal payments. The company also provides year-end summary reports for tax purposes. This enables lenders to accurately declare interest income while borrowers can benefit from the federal deduction for mortgage interest paid.
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