Real Estate and Home Mortgages - Considering refinance, seeking advice....

Hello all.

I'm looking to gather some information and advice for the possible refinance of my home.

Some of the details are as follows:

Purchase price (in 2005) = $315,000

I went with an 80/20 (mortgage/LOC) split: 252,000 and 63,000. The rates are 6.375 and 9.5% respecively.

My plans, barring any major changes with work, are to stay in the house for a long time, at least until my children are grown (15+ years). I think the LOC rate is just too high (even though the tax deduction is nice). I'd like to see if I can find something that would roll both loans into one fixed rate loan to lower the monthly payments. The balances on the two loans are 247 and 60 for a total of $307,000. I've done some improvements over the last year and would estimate the value of the home to be in the $335-345 K range. Obviously, I did the 80/20 to avoid the PMI.

Looking for suggestions on lenders who may consolidate these loans and reduce my overall monthly payments from about $2500 to maybe $2000.

Any suggestions on who to contact, websites, places to avoid, etc?

Any advice would be greatly appreciated.
Thanks in advance.

You're well served to ask around on a scenario like this one.

From what you've got here I'm coming up with a payment on your current 1st mortgage at $1,572.15 and a payment on the line of credit at $498.75. Let me know if anything is off here. That gives me a total of $2,070.90. Perhaps the rest of your payment is your tax and insurance escrow?

What the property appraises for should play a major role in your benefit analysis. The Loan-To-Value-ratio (the dollar amount financed divided by the value-expressed as a percentage) of the proposed loan will be weighed heavily in determining what rates will be available and in turn determine the level of benefit. In the event of default a lender can typically foreclose on a property and recover 65 cents on the dollar. However, LTV ratios over 65% pose elevated risk (statistically). This is one of the reasons that some borrowers with very high credit scores sometimes pay higher rates than others. In this case, you were able to purchase at 100%LTV.

By splitting the 80/20 you were able to avoid the PMI, and obtained a second position line of credit instead. The rates on and second position loan will always be noticeably higher. The reason for this comes back to risk assessment. In the even of foreclosure (where lenders expect to lose money) the lender in first position is paid first while the second position lien holder must wait and take whatever is left over (if anything). While it is often the lenders on the first and second mortgage in a "combo loan" will be one in the same, these loans are often sold to other companies and are graded as such.

Many second liens in a combo loan are LOC's and only require an interest-only monthly payment (by seeing your balance, it's apparent that you've been paying extra principal). This should be taken into consideration to make a true "apples-to-apples" comparison between what you have now and any proposed refinance.

It seems likely that a new loan would still be somewhere in the 90%LTV range (based on a value of $335-$345). There is a measurable difference between 89%LTV and 91%LTV. Depending on your other qualifications you should have the option to refinance both as a 80/10 split, one loan with PMI or one loan with LPMI (Lender Paid Mortgage Insurance is PMI that is built into the interest rate at a premium, rather than charged as a monthly fee). Pricing on high LTV seconds has only gotten worse and may only be slightly better due to a lower LTV. Should you entertain any one loan options with PMI or LPMI you will see a difference in the pricing and the PMI charge if you under/over 90%LTV.

The best thing to do is set a bar. Determine how much money do you need to save per month to make a refinance worthwhile. Once you've got a figure you feel is viable, speak to a professional mortgage consultant and have them research the different options for you. With the appraisal being such a pivotal factor, the mortgage consultant would be best-suited to confer with an appraiser in the area and get a comp-check (research of recent sales of comparable properties in the neighborhood) to get a better hold on what the home would appraise for. If you can get everything done without being over 90%LTV there just might be a viable benefit here. Otherwise you may just want to hold out a bit longer. It's hard to say without seeing everything.

In terms of what loan options are best.....
I'd reccomend laying out the 80/10, one loan with PMI, and one loan with LPMI and comparing the three. Determining which of these structures is best is entirely subjective.

Hope this helps kev, let me know if you need anything else.

Loanguy-

Thank you so much for such an indepth response. Your input is very informative.

You are correct on the payment amounts. With the escrow for taxes and insurance, the payment is $1897.03 for the main, and the LOC loan varies from say $440 to maybe $490 depending on calendar days. I always round the LOC loan to $600 for the additional principle. This gives me a total output of $2497.03 a month.

I'm currently shopping around for lenders to see what kind of quotes/types of loans they suggest. I will look at the different loan types and compare. I will have to have the house appraised as I'm really not sure of the acutal value. I'm assuming (and we all know what assuming can mean) that the house was appraised before it was sold in Oct 2005. The asking price on the house at that time was $335,000. Since then, I've done a kitchen remodel and 2 bathrooms. Again, I'd have to have a formal appraisal before I know for sure.

I'm going to see what the numbers look like in the interim, and see where the morgtage lenders lead me. You're right, it may be more beneficial to hold out until the LTV is <90%. Of course, I won't know that until the appraisal.

Anyway, thank you so much for the advice.

I'm glad to hear that the information was helpful to you. Best of luck in your dealing with the lenders.

It's a very different marketplace right now, I'll be posting some info on the matter soon.

Feel free to let me know if you need anything else.