Posted: Tue Aug 21, 2007 5:28 am Post subject: Should I refinance 80/20 loan to 100% financing?
I came to know from a friend of mine that the mortgage company I deal with is currently offering a 100% mortgage at 7.5% rate of interest. I have currently an 80/20 mortgage from them against my home. The 80% loan is a fixed rate mortgage at 6.30% and the 20% loan is a second mortgage (heloc) at prime rate + 2%. Do you think it is better to refinance any of my loans with the 100% loan. My home value hopefully will not exceed $320,000. The balance on the first loan is $250,000 and on the heloc it is $65,000. I’ve been on the home for 3 years now and wish to stay there for at least 3 more years. Any advice would be appreciated. _________________ Need help choosing the right loan? Get free consultation from community lenders/consultant
It will be better if you don't refinance because you're not staying in the property for a long time. refinancing would require a good amount of closing costs which i guess you will not be able to recover within a period of 3 years. Also, your existing loan rate, I mean the first mortgage offers you a lower rate than the refinance loan. So, you better not change it. _________________ Procrastination is the enemy of your financial sucess
As far as I know prime rate for heloc were at 8.25 couple of days back. And you have a 2% margin which is getting added to it making it a 10.25%. So refinancing to get a single loan @7.5% instead of the two you have presently would be lot more beneficial.
Both loans combined are below the present value of the house (cltv = $315,000 & house value = $320,000) so you would be able to get a 100% loan, if other requirements match.
It is better to stay with what you have now because the new loan will have mortgage insurance, that will eat up most of the savings you might gain. Even if there is no mortgage insurance you would not have a better deal. There will be costs assosiated with the loan that might take as long as 5 years to recoup.
Here is a simple calculation based on the information given:
Currently 1st mortgage @ 6.30% 250,000 = $1547/month
2nd mortgage 10.25% interest only 60,000 = $513/month
1st and second total = 2060 / mo
New loan 320,000 @ 7.5 int rate = $2237/month
So you are loosing $177/mo and will spend around 6k of the equity you have in the house to refinance.
The only good thing about this loan that it would be fully ammortised (you would be paying more towards your principle balance) and fixed rather then the second mortgage that you have currently as adjustable heloc. But you if you can spend $177 extra each month you are better off putiing it towards your heloc. You will save alot on interest and payoff your loan faster and ashould you ever need the cash you can borrow it back from your heloc.
If you want to prolong your stay in this house then consider the new loan option. But as you said right now you have plans of staying for another 3 yrs. only, then this present combination is doing well and you need not change it. If you stay longer and the prime rate for heloc goes up then the ratios can change and make the payments expensive for you to bear in the long run. _________________ Good is the Enemy of Great.
Refinancing is generally beneficial when you plan to live in the house for a longer period. Then only you will be able to benefit from the lower interest rate associated with refinancing. Otherwise, you won't be able to cover the huge closing cost which is involved in refinancing.
And as you are planning to shift from the house within 3 years, then you should not consider refinancing as a right option for you.
The fed just reduce the federal funds rate by .50% this generally means the banks will reduce their prime lending rate by .50%. So you should see a rate reduction on that second mortgage you have. The first mortgage rate you have is decent so I would not refinance at this time.
Larry provided the definition. Current Prime Rate is 8.25% this should be reduced by most bank to 7.75%. The prime rate affects Home Equity Lines of credit, credit card rates and commercial loans. Any loan that uses the prime rate as the index.
The prime rate of interest is used as a benchmark for most other loans in the market. Lenders generally fix their prime rates of their loans as per the rates published in the Wall Street Journal. I agree with Mike as the current prime rate is 8.25%. With the changes in prime rate, most consumers face the changes in interest rate of their credit cards, Home Equity Lines of credit, and other commercial loans.
The prime rate hardly changes frequently. It changes only when the Federal Reserve changes their base rate.
adonis
