ASSET DEPLETION RATE/TERM REFINANCE
Essential Elements

An Asset Depletion Rate-and-Term Refinance is a mortgage refinancing option that enables borrowers to adjust their loan’s interest rate, loan term, or both, without relying on traditional income sources. Instead, it uses the borrower’s liquid assets to determine their eligibility. 

Asset-Based Income Calculation
The core element of asset depletion refinancing is the calculation of income based on the borrower’s assets rather than traditional income verification methods.

– Underwriters evaluate liquid assets, which may include cash savings, stocks, bonds, mutual funds, retirement accounts, and sometimes certain real estate holdings.

– Guidelines use a formula to determine how much income the borrower’s assets can generate monthly. A common approach is dividing the total asset amount by a certain period, such as 360 months (for a 30-year loan term), or taking a fixed percentage of the assets.

Liquid Asset Requirements
Only specific types of assets qualify for the depletion calculation. Generally, lenders focus on highly liquidable assets such as:

– Cash and checking/savings accounts.

– Investment accounts (stocks, bonds, and mutual funds).

– Retirement accounts (401(k)s or IRAs), though some guidelines may only use a portion (60-70%) due to potential tax penalties for early withdrawal.

– The borrower must have enough assets to cover the lender’s calculated income requirements for the desired loan term.

Lender-Specific Depletion Formula
Each lender has its own method for calculating asset depletion, which influences the monthly income figure used to qualify the borrower.

– Underwriters will divide the total assets by a loan term (60- 360 months).

Credit Score and Debt-to-Asset Ratio
Although asset depletion refinancing is more flexible with income verification, most lenders still require a strong credit score of at least 620.  Borrowers with higher scores will likely be eligible for betters terms/loan closing costs.

– Instead of the traditional debt-to-income (DTI) ratio, lenders often assess a debt-to-asset ratio to gauge the borrower’s financial strength and repayment ability based on their available assets.

Documentation of Assets
Borrowers must provide detailed documentation to verify the assets they are using for qualification.

– Bank statements (usually covering the last three to six months)

– Investment account statements to verify stocks, bonds, or mutual funds.

– Retirement account statements (sometimes adjusted for tax implications on early withdrawals).

– Some guidelines will require the borrower to maintain a minimum level of liquid assets even after the refinance to ensure continued financial stability.

Interest Rates and Fees
Asset depletion refinancing may come with slightly higher interest rates or fees compared to conventional refinancing, as lenders may see it as a higher risk given the non-traditional income structure.

Ideal Candidates
Retirees with large savings or investment portfolios who seek to reduce monthly payments or shorten loan terms.

– Self-employed or high-net-worth individuals with significant liquid assets but fluctuating or undocumented income.

An asset depletion rate-and-term refinance is structured around the borrower’s assets rather than income, allowing individuals to modify their mortgage terms while demonstrating financial stability through asset-based calculations. This makes it a valuable option for those with substantial assets but without consistent or documentable income sources.