Real Estate and Home Mortgages - Refinancing- Interest only or what? doing it this week.

Hey everyone,

My fiance is refinancing his house this week. He owes 265,000 on it and also has a HELOC of $25,000 (that we used earlier in the year to pay off some debt.

The 1st loan is a 6.75 arm and will adjust July 1st, payment is $1650
The 2nd loan is at 11% payment is $220

The house is probably worth about $320,000 or so.

FICO score is 702

We got some rates so far but do not want to do a short loan...Fiance has already refied 3 other times! Now that I am here..no more refi's!!!! So..we are looking into a longer loan.

Should we save some money and get an I.O (loan officer said rates are around 2.275 for a 5 year I.O, no prepayment penalty) or pay a higher percentage rate and pay interest too?

We plan to stay in the house a long time are are currently in Las Vegas.

:)
Courtney

Welcome back!
You know how I feel about interest only loans from back when you were first looking into this. ;)The industry has pretty much supported my view--too risky. That is part of the foreclosure boom going on right now. He's refi'd 3 times???

You say some conflicting things: interest only/ARM and no more refis...but you plan to stay in the house a long time. None of those things go together! LOL
2.275% on a 5 year ARM? No way, watch your back. More likely a 1 mo or 6 mo ARM--a useless loan unless you're selling the house in a month or so and want to do this instead of a bridge or something.

Fixed rate. 30 year term. Shop for your best deal, watch the fees. No more refis and enjoy the security.

Hi!

Whoops! I meant to say 7.275 on a 5 year I.O

That is not long enough. Loan officer just called and gave me another option...

10 year, I.O, No Pmi

80/10 loan for $299,000
1st is at 7.5%
2nd is at 8.375$
payment is $2132

He said we can look at loans with principal payments, but they will make the payment go up at least $200 more a month. Is that worth it or should we just pay extra each month if we towards principal

Also, SHOULD we put this HELOC with this new loan (25,000) or just attempt to pay it off..payments are $200 a month for it at around 11%)

(yes..lots of refi's fiance did, once he was being greedy with an ex, then he had to refi to pay the ex her share of the house when I came along, and now is the 3rd time)

wbs and thank you for the advice. Calling countrywide tomorrow to get some more quotes.

Not a fan of IO loans. I think Bill gave you great advice suggesting a 30 year, fixed rate note. Incidentally, that's what I have on my house.

Given your plan to stay awhile, I agree with the others. Get a 30 yr fixed. Las Vegas is one of the worst areas in the country right now for foreclosures. You're hardly sub-prime with a FICO of 702, so why follow them off of the cliff?

Yeah, I.O. and ARM may seem good at first because all you're thinking is payment. Well, when the ARM swings the other way you'll be worse off than a 30 Yr fixed. With an I.O. you're not paying any principal so you have no protection against a downturn in values. The Loan Officer won't be the one in the hot seat if things go wrong. He'll likely be in one of the casinos spending his commission, which is what he's most concerned with.

Sounds like you plan to be together, and in the house, for many years. Paying down the principal each month prepares you for when plans change, because inevitably, they do. 30 yr fixed keeps your payment fluctuations solely to factors such as property taxes and insurance, without worrying about when your rate is going to skyrocket.

10 year, I.O, No Pmi

80/10 loan for $299,000
1st is at 7.5%
2nd is at 8.375$
payment is $2132


So this is a cash out refi? You mentioned he owed $265k, or are these updated figures?

If $265,000 and value at $320,000 you're better off with PMI than a combination loan with high rates. That's <85% LTV, so the PMI rate would be low, PLUS it would drop off fairly soon. If you use the combo loan, you're stuck with the high rates no matter what--or higher since these are adjustable. You'll be refinancing again.

So:
-30 year fixed rate
-*not IO*
-should be about 6.125% with no points/origination.
-$265,000 P&I payment: $1601.99 + $71/mo PMI = $1672.66 plus escrows

That's a loan you can stick with and in no time that PMI will drop off. PMI is also tax deductible, with income limitations, as of this year.
The loans you're describing are not "long term and no more refi" oriented. Go for stability and quit having to deal with this every few years. ;)

Hi,
The amount we owe on the house right now is 265,000.
We owe $25,000 on a heloc. With closing costs and fees (?) the cost is then to $299,000

So I wanted to know if we should leave that heloc or put it in with the new mortgage. There will be no cash out.

wbs...will get the rates of a 30 year fixed today and will post all of the info and total payment...

They said that Jason can do reduced documentation and only show a 401 k for assets. The other guy said , no way..he has to do stated income because he is a bartender. (so the rates may change)

Countrywide options

#1
30 year fixed, first 10 years are I.O
Rate is at 7.625 because of a tami add-on
The first ten years payments will be a total of $2105 (w/taxes and insur)
After 10 years, years 10-30 payment is $1400 a month
no prepayment, no pmi
tami percentage rate added is tax deductable

#2
30 year fixed
Rate is 7.375%
Total of $2270 (with taxes and insurance)
Loan officer says you really won't pay any principal for this loan until about 10 years anyways.

Get a copy of your credit reports. You can go fast & easy stated income at CWB with a 680 score now, no rate bumps. How close are you to that score? They will do 95% LTV if a rate & term refi, but only 75%LTV if cash out.

If that HELOC was used in purchasing the house, then this is a rate & term refi. If it was NOT used in buying the home, OR if there were draws from the line of credit afterwards, this will be considered a cash out refi. Still, even at $299k, you're LTV is good at barely over 85%. I don't know if even the TAMI is worth it. Again, you'll eventually pay down and PMI will drop off. PMI will fall off in about 75 months for you, dropping your payment. With TAMI, you keep the higher rate no matter what. If the house appraises for enough to keep your LTV at 84.9%, you'd get an even better rate on the PMI.

"After 10 years, years 10-30 payment is $1400 a month
no prepayment, no pmi
tami percentage rate added is tax deductable"

After 10 years, your payment is re-amortized based on the remaining 20 years. If you still owe $299k, then your prin/int payment alone skyrockets up over $2400...then add your escrows.

Depending on your income, the PMI is also tax deductible now.

Called the guy from countrywide. I definatly do not like his option #1 loan (the 30 year loan that has the first 10 years I.O)
In the 11th-30th years the payment will skyrocket from $2100 a month to $2600 a month! No thanks!


My friend said she just got a house and did a 10 year I.O loan. But every month, they pay a minimum of $100 extra that goes DIRECTLY to the principal. Her loan offficer said this is better than doing the 30 year fixed because you don't pay much towards the principal anyways.

What do you think of this?

The HELOC was taken out a few months ago so it wasn't used to buy the house..it was used to pay off some debt to raise Jason's credit score (which it did by about 20-30 points) So I am thinking that it does count as a 'cash out refi' and not a 'rate and term refi'.

As far as the percentage of this loan. The loan amount will be for about $300k and the house should appraise anywhere from $320-330,000

wbs..still looking...

Hi, (sorry about the double post, you can delete the other one)

I know that you are all against I.O loans for obvious reasons but I just got some new rates and wanted to throw them out at you..

$300,000 loan amount

Option #1 90% loan, 10 years I.O, 30 years fixed, no prepay, no pmi (refi in 10 years)

7.25% taxes and insurance = $2020


Option #2 30 year fixed loan, no prepay, no pmi

7.375% taxes and insurance = $2270


We can afford the 30 year fixed but what really goes towards the principal? Can we, should we, just get the option #1, and make an extra $100 payment each month to make that payment be $2120 or do the 30 year fixed and never have to refi but have a higher payment?

What are our goals? Keep the house for years to come, if we move try to rent it out (it's in Las Vegas) have a low payment. Houses here are still slowly gaining equity, not as fast as a few years ago. Never take out a HELOC or any equity..maybe never even sell it.

wbs and thank you,
Courtney

Advice remains the same: "Fixed rate. 30 year term. Shop for your best deal, watch the fees. No more refis and enjoy the security."

If you plan to rent it out, you need a fixed rate. You don't have a rental property and keep refi'ing it. Plus, when it becomes investment property, the rates go up if you refi.

"My friend said she just got a house and did a 10 year I.O loan. But every month, they pay a minimum of $100 extra that goes DIRECTLY to the principal. Her loan offficer said this is better than doing the 30 year fixed because you don't pay much towards the principal anyways."

$100 a month towards principle? That's not much on a loan of this size. On the loan I'm advising you to get, you'll pay about $3500 towards principle the first year ALONE. By end of year 2, $7400. You'll owe less due to actually paying back the money you owe at a decent pace PLUS have a significantly lower interest rate. People that tell you that you don't really pay anything towards principle are people that haven't actually done the math and don't know what they're talking about. ;)


I merged your threads since they're on the same topic, no need for another thread. :)

Hi,

But you think that 7.3% is alright for a 30 year fixed?

We can't do a 'fast and easy' loan because all houses in Clarke County do need an appraisal.

(Jason's FICO score is 702 but he has to do 'stated income' because he makes tips)

Countrywide called with another option...
Two 30 year fixed loans (never heard of this?)

1st is at 6.5% for $260,000 $1645 per month
2nd is at 7.5% for $35,000 $245 per month
with taxes and insurance (no pmi) is about $2115 a month

My head is starting to spin!


wbs
Courtney

No, 7.3% is not a good rate when you can get about 6.125% fixed now.
Fast and easy is a stated income loan with no rate/fee increases, since your score is high enough. They still have appraisals, that doesn't have anything to do with it. If this is a rate & term refi, you'd be set. If it's considered cash out, then you might not make the LTV requirements.

Another option....

Countrywide

6.5 30 year fixed with a tami add on to equal 6.875%

He says there is no appraisal needed for this 'fast and easy', this is for no income doc, no pre payment penalty, credit score of 705. He swears there is no appraisal needed. Because if there is, the rate would go up. (loan amount of $295..appraisal would be $325 we are assuming)

Where are these low loan rates you are talking about? I have shopped around and this is the lowest rate I can find..the 6.875%

I think Jason's rate is higher because he has to do stated income

Fast and easy is the stated income loan, due to the score being at a certain level. Maybe there's some product with no appraisal, but I don't know of it. That doesn't mean it's not out there.
Rates went up a bit yesterday and today. About 6.375-6.5%. Could be that your guy is simply trying to make more than he should, or he's looking at a different product. CWB does not typically have the best rates to begin with, but for stated income loans it's hard to beat the fast & easy. ;)

Ok, No more 'fast and easy' with countrywide. Something about, 'because the HELOC was only 6 months ago it has to be a cash out refi or something' Now the rates are higher...like I thought..too good to be true.

I am looking at, again...either

Refinancing the 1st into a 30 year fixed ($275k...rate in the mid 7% range I think)
keeping the HELOC how it is right now (11% for 25k)

OR

Doing just a 1st and adding our HELOC to do a 30 year fixed at 7.275%

OR

Doing a new 1st and 2nd
do not know the rates

I am speaking to my families financial planner this Monday to see if he thinks we should get a 30 year fixed or a 10 year I.O but save a lot of money each month ($500 or so) and invest it instead of putting it towards the principal.

wbs and thank you again!