Mortgage Re-Fi question

I know there some mortgage guys here, so I thought I'd throw this question out:

My current lender allows me to modify my rate every 24 months. I am eligible for another rate reduction next month.

We have also been thinking about some home improvements and considering a home improvement or home equity loan.

Should these two entities be bundled or handled separately?

Grab the rate reduction first - then ask about the equity loan.

another question to the mortgage guys......at what point do you refinance or not? Is there a point that you don't consider refi?

I have a 5.25% 30 year (about 15 years left). The little lady insists we refi and I state we just pay it off as quickly as we can.............what is the rule of thumb here?

(go ahead and insert your smart aleck replies now) 1. Don't refinance when you have paid off the loan.

pete240z wrote: another question to the mortgage guys......at what point do you refinance or not? Is there a point that you don't consider refi? I have a 5.25% 30 year (about 15 years left). The little lady insists we refi and I state we just pay it off as quickly as we can.............what is the rule of thumb here? (go ahead and insert your smart aleck replies now) 1. Don't refinance when you have paid off the loan.

Ooh - I'm pretty close to this one, but 20 years out. And annoyed BOA ended up with the note (which they immediately started adding bs fees). Any IL mortgage folks or recommendations?

Post 1 - Handle them separately. Even better, save and pay cash for the home improvement. Second mortgages / HELOCS have even higher rates than first mortgages.

Post 3 - Run the numbers. Play a few dozen games of what-if with excel. You can absolutely get a lower rate, and if you go to a 15 or even 10 year loan, you don't kill yourself on the amortization. Paying extra is good, but if you can refi into the lower rate / shorter term, then you are better still.

Compare the payments on a 15 year refinance vs your current monthly. Rates are much lower and maybe both of you can be right

Woody wrote: I know there some mortgage guys here, so I thought I'd throw this question out: My current lender allows me to modify my rate every 24 months. I am eligible for another rate reduction next month. We have also been thinking about some home improvements and considering a home improvement or home equity loan. Should these two entities be bundled or handled separately?

Does the modification cost you anything?

How much cash do you need to take out? Where will that put you with regard to loan-to-value? Cash out refinances have a higher risk than rate/term, so they carry an interest rate premium and allow for lower LTV.

The more cash you take out, the more sense it makes to combine them into one loan. The lower interest rate on the entire balance may overcome the closing costs - as compared to having some portion in a higher interest rate second lien.

You have to crunch the numbers.

pete240z wrote: another question to the mortgage guys......at what point do you refinance or not? Is there a point that you don't consider refi? I have a 5.25% 30 year (about 15 years left). The little lady insists we refi and I state we just pay it off as quickly as we can.............what is the rule of thumb here? (go ahead and insert your smart aleck replies now) 1. Don't refinance when you have paid off the loan.

Assuming apples-to-apples with regard to term remaining, the rule of thumb is to calculate the cost of refinancing (closing costs) and divide by the monthly payment savings to determine your break-even point. Then decide if you want to live there that long.

If your lender will premium price your closing costs into your rate so that you do not have to pay anything out of pocket, and the refi results in a lower payment (assuming similar term), then it is a no-brainer.

I just did exactly that - sign and drive, no $ out of pocket, and lopped a couple bennies off of my loan each month. And my old loan was under 5% - but I have a big mortgage.

My last rate modification (same bank) cost me $650. I'm currently at 4.875% fixed. I built the house ten years ago and I owe about 40% of its current market value, with about 15 years left on the existing note.

I plan on staying at least another 20 years.

Woody wrote: My last rate modification (same bank) cost me $650. I'm currently at 4.875% fixed. I built the house ten years ago and I owe about 40% of its current market value, with about 15 years left on the existing note. I plan on staying at least another 20 years.

So the size of the loan(s) makes the difference.

Extreme hypothetical scenario #1

I owe $50k and I need $12k for home improvements - modify the first and take a HELOC for the $12k. The higher interest rate on the HELOC will ultimately add up to less money than the closing costs for a full cash-out refi.

Extreme hypothetical scenario #2

I owe $200k and I need $100k for a big room addition and total remodel - combine the two and get the low rate on the whole balance. The closing costs will be small compared to the interest paid on the second over time.

Edit - editorial comment deleted

mguar wrote: In reply to Woody: Do Not take an equity loan!!!!!!! It has all the disadvantages of a regular mortgage with none of the protection.. Stuff happens.. When it does (note I said when and not if) with a regular mortgage your bank has an incentive to help you avoid foreclosure.. Both Federal and in some places state help will get you through the rough patch. Banks rub their hands together with equity loans though.. They can modify your home loan to meet federal guidelines and yet collect massive amounts on your equity loan without reducing the principle a dime.. Interest rates on equity loans is higher.. While deductible do not pay off the principle as quick.. Avoid them like the plague..

However well intentioned this might be, it is mostly nonsense.

The lien position has little to no bearing on your rights as a consumer and any possible protection you might be offered by federal or state law.

Foreclosure is the last resort for a financial institution, and a second lien holder has considerably less leverage - more often than not, they get nothing or are forced to buy out the first lienholder.

The loan agreement is a legal contract and ordinarily cannot be modified without your consent.

Most second liens are simple interest. Yes, there are some interest only HELOCs, but you should know that going in. I have never encountered a loan contract that had a provision for the collection of "massive amounts of interest" without principal reduction.

I've spent more than a decade working with executive management and CEOs of financial institutions helping to implement real estate lending operations. I am very familiar with the regulatory aspects of this business, both existing and pending. I am also very experienced in lending operations, specifically including loan servicing. This is the second most regulated industry in the country, second only to nuclear power generation.

Yes, there are unscrupulous lenders and yes, there are loan products out there that should be avoided. Just like there are shady used car dealers. Far fewer of these exist today than a few years ago, but it is still the responsibility of the consumer to understand what they sign.

Most of the real horror stories surround subprime loans and poorly documented files such as 'no income verification'. I could go on, but the point is that the abusive practices that lead to the Mortgage Meltdown were almost exclusively related to first mortgages. Second liens and HELOCS were not the issue.

I often recommend credit unions - they are non-profit financial cooperatives with volunteer boards. Almost without exception, the credit union CEOs that I've encountered genuinely want to do the right thing for their members. They are sometimes held back by lack of scale, but their intentions are almost always in the right place.

In reply to mguar:

First let me say that I am sorry for your hardship, and your clarifying remarks add context that help me to understand your earlier comments.

I'm still puzzled by some of this however. Credit unions cannot be 'bought out'. They can merge with other credit unions - either voluntarily (with approval of their membership and their regulator) or by force if they are insolvent. A few have also converted their charter to mutual savings banks, but that is rare.

The HAMP program is not consumer protection - it is an economic stimulus program. It applies only to loans owned by Fannie Mae or Freddie Mac. It was never intended to assist all distressed borrowers or to apply to all loans secured by real estate.

Without knowing all of the specifics, I can only guess that your loan balance has grown because the payments made have failed to cover the interest accrued. I'm sure that late fees and other penalties have been applied as well.

With no disrespect intended - this is in accordance with the legal contract that you executed, and would not have happened had the loan payments been made as agreed.

Again, I am truly sorry for the difficult times you are experiencing.

DILYSI Dave wrote: Post 3 - Run the numbers. Play a few dozen games of what-if with excel. You can absolutely get a lower rate, and if you go to a 15 or even 10 year loan, you don't kill yourself on the amortization. Paying extra is good, but if you can refi into the lower rate / shorter term, then you are better still.

+1.

We've re-fi'd a few times, and each time the goal was to spend less money overall. Excel has some very good functions that allow you to come very, very close (within a few $$, but not exact for some reason) to what the bank does.

Short loans seem to be very much ok for banks. At least good ones.

Through the re-fi's, we've increased our monthy payments (not to the point of pain), but the long term will save us lots of $$.