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
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..
pete240z wrote:Refi now but go to the shortest term you can afford the monthly payments.. 10 year? 7 year?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.
The shorter the term, the lower the rate and the faster you build equity.. The greater your initial tax break so the the more take home pay you have to actually make the payment..
I'll bet the last confused you.. Interest paid on a mortgage is deductible. You pay the most interest at the start of a loan. When you refi you start over again with a high percentage of your payment as interest.
It is legal (and you should) take extra deductions to cover the interest you're going to pay.. Assume you have only 3 deductions now.. If you take say 7 deductions you will pay less income tax so your take home pay will be higher..That higher take home pay will allow you to make higher payments..
Please ask either the IRS or a professional tax preparer to help you understand this. There are details you need to be aware of but it is a legitimate process.
The IRS doesn't need you to pay any more than you owe. So don't give the IRS an interest free loan.. They won't give you one..
Finally, sit down with the little lady and do some long term planning.. Think about way down the road.. Retirement, way down the road.. Do you want to go south, buy a small farm, place at the lake or in the mountains?
Ask your little lady (and yourself) why you need the addition.. Is it space? The house is too crowded? How soon will the kids be off to college? (On their own) OK what will happen once that happens? Will the house then be too big? I built an addition for that reason and now the house is so big we rattle in it.. Cleaning and dusting etc. takes days.
In retrospect I should have purchased a Time share.. Right now there are time shares out there you can have if you just take them.. When the temps are below zero for weeks it's tempting..
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.
bludroptop wrote:Wow what a difference perspective makes.. First let me say going in that I too loved working with my credit union. Almost 40 years I dealt with them on a friendly informal way. Never a problem..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.
However My credit union was recently bought out by a large financial institution. Unfortunately that occurred right as I needed help from the credit union..
The new company was forced by political pressure* to modify the mortgage according to federal guidelines.. (the HAMP Program) However home equity loans are exempt from those.
Every cent I've paid in the last 4 years (tens of thousands of dollars) has gone to paying interested that compounds at an intense rate due to the way the loan is written (No it's not an interest only loan)..
The initial home equity loan was supposed to be rolled into a regular mortgage but that never happened due to the pending takeover.. If it had been turned into a regular mortgage my mortgage payments would have been very nearly cut in half based on HAMP guildelines.
As it was without the political pressure aided primarily by the State Attorney General nothing would have happened.. As it stands in spite of nearly $100,000 paid over the past 4&1/2 years My home equity loan is almost $20,000 higher than originally borrowed..
The regular mortgage is getting reduced nicely and by retirement should be gone completely.. My only hope for the home equity is to roll it into a conventional mortgage at some point.
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 $$, but not exact for some reason) to what the bank does.
Short loans seem to be very much ok for banks. At least good ones.
Through the re-fi's, we've increased our monthy payments (not to the point of pain), but the long term will save us lots of $$.
In reply to bludroptop:
I'm slowly grinding my way out of the problems caused by deregulated banks.. So I more than many have a real issue with deregulation.. However I expect to recover fully..
None of the problems I experienced would have happened if the home equity loan had been rolled over into the mortgage like it should have. I would still have some retirement and a credit score in the toilet wouldn't happened..
For over 2 decades I made a very nice income selling telehandlers to the new construction industry. Prudently saving a tidy nest egg. When the banks went crazy with their credit default swaps etc.and the ship hit the fan I lost my career. (I'm age 63) My nice nest egg went away along with my 401K and IRA's (luckily while they were still up) The Credit union modified my mortgage according to HAMP but not the home equity loan.. At the time there was almost 2 million dollars worth of equity in the property..
Yes, home values have dropped.To be fair they increased in part because of the banks greed at writing loans.
40 years of 750+ credit scores have vanished. Retirement has vanished.. Career gone!
Like you I don't know the details of how a credit union was purchased by a financial institution. All I can say is that things went downhill so fast that I was forced to close a banking account with them that was 40 years old.. (I moved it to a small local bank who has since been great to work with) {Note I tend to have good long term relations with Bankers}
All I can say is thank God for State attorneys and other politicians capable of putting pressure on financial institutions..
They came very close to foreclosing on my home when there was still nearly a million dollars worth of equity. Only by selling assets for dimes on the dollar was I able to forestall them and apply political pressure..
What is unique about my situation is I have 30,000 (yes thirty thousand hours, normal is about 3000 hours for a house this size) My hours.. nights and weekends after a full time job building this place.. (plus about 3000 hours from hired helpers) This is a really uniquely built house..
