Is it a refinance or home equity loan?

Question

I bought a house 6 months ago before I sold my condo. I borrowed the money from my brother for the new home until the condo sold. I have a written contract and have been paying interest. He is starting to get nervous, so I would like to take out a mortgage for the home to pay him back. Would this be a refinance or a home equity loan? Also, when the condo sells, I expect to still have a mortgage of about $40,000. Assuming I take out a new mortgage now on the house, when I pay 3/4ths of the loan amount off in one lump sum, will my monthly payments decrease or will the monthly payment amount stay the same, but the loan be paid off more quickly?

Answer 1

Hi there..

I agree that these are very good wquestions...as a broker these have to be some of my most common questions asked...

Here's to answer the main question...

A home equity line of credit, and a full refinance are 2 completely different things..

A HELOC (Line of credit) is simply a loan that shows up as a lien on your property..(similar to a mortgage) Unfortunately it is not a mortgage... A HELOC is a giant CREDIT CARD secured by your house... On your credit report a mortgage shows as a real estate debt.. A HELOC shows as a REVOLVING DEBT (same as a credit card)....Also a home equity is a 2nd lien position to your first mortgage...(which makes it much more of a risk)

A refinance is borrowing a new loan to pay off your existing home loan, personal debts, car loans, credit cards, do improvements, etc... Many things!! The thing is in a new refinance, you are simply re establishing a new first mortgage (which will be a REAL ESTATE DEBT)

A 1st mortgage has much less risk to a lender, and also is MUCH MUCH BETTER for your credit!!!

Now a days almost every LARGE bank in america tries to SELL (keyword sell)... HELOC'S to their cliend\ts because they can make alot more money form them...

You will see commercials saying low or no cost HELOC'S... Lets face it, its 2006, and nothing in life is free anymore... You pay for what you get.... If you are going to do a loan from a lending organization for NO COST.. there's a catch...

here it is... in the last 3 years the prime rate on a home equity line of credit (heloc) has went from 4%..to a staggering 8.25%!!!!! Th unfortunate thing is it is still rising!!!!

People that got a HELOC 3 years ago saw their payments more then triple in the recent year!!!

THIS IS WHY I SUGGEST TO STAY FAR FAR AWAY FROM HELOC'S!!!!!

Here's what i would suggest..

You do what is called a CASH OUT REFINANCE... you can take out cash to pay off your brother... You will now have a new mortgage with a new monthly payment...


Now as you were saying you will get the lump sum from the sale of your condo... WHen that time comes (which you have no idea when) you take the lump sum, and pay off most of the mortgage...

Now if you leave it at that, then you are right..YOUR MORTGAGE PAYMENT STAYS THE SAME..YOU JUST WILL BE ALMOST PAID OFF IN FULL~~~

What you can do then if you want a lower payment is refinance again, and extend your term..(although i wouldn't advise that unless you NEED a lower payment)

The reason i wouldn't advise htat is because as im sure you realize, the longer you finance something the more interest you pay... Sometimes though, it is inevitable that you HAVE TO PAY THE INTEREST IN ORDER TO HAVE AN AFFORDABLE PAYMENT...

It would pretty much be up to what you can comfortably afford at the time, and you would have to decide whether to do a new mortgage for 10, 15, 20, or 30 years..(the less years the lower the payment)

My name is Jason Fry, I am a licensed mortgage loan officet for Providential Bancorp.. I hope this information is helpful, and i would also be hapy to assist you further if need be..

Being you are asking the question here, i assume you dont have a broker you normally deal with..(or trust for that matter)

I would be happy to step in and assist you with your financing... I have been in the business for 8 years, and i have the knowledge and experience to find you the best options...

Feel free to give me a call if you have more questions, concerns, or would like to do a refinance.. My direct line is 312-264-6448, and you can email me at [e-mail]...

My company is nationwide, so i am licensed to originate in all states!

Thanks for reading, and good luck to you!

Jason Fry
Senior Mortgage Specialist
Providential Bancorp
312-264-6448

Answer 2

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RE Is it a refinance or home equity loan?

I bought a house 6 months ago before I sold my condo. I borrowed the money from my brother for the new home until the condo sold. I have a written contract and have been paying interest. He is starting to get nervous, so I would like to take out a mortgage for the home to pay him back. Would this be a refinance or a home equity loan? Also, when the condo sells, I expect to still have a mortgage of about $40,000. Assuming I take out a new mortgage now on the house, when I pay 3/4ths of the loan amount off in one lump sum, will my monthly payments decrease or will the monthly payment amount stay the same, but the loan be paid off more quickly?

Answer 3

it would be considered a new mortgage or refinance. With a home equity loan, you usually keep the original loan and have another loan based on the equity in the home. In your case you are paying off the original loan (your brother) and starting over. As for the payments and lump sum thing... I'd assume your payments would be the same no matter what, just get paid off faster. It will depend on the terms of the mortgage company. Some have early pay off fees, etc. If you want lower payments after you pay the lump sum, you may need to refinance again. You need to discuss your options with a mortgage broker or such. They should be able to help you find the best options for your situation.

Answer 4

Since the money was originally borrowed from a family member this would be a first mortgage unless your brother has it registered at the courthouse that he is the lender. When you pay on the mortgage with the money you get from the sale of the condo your principal amount will go down. Your payment will remain the same.

Answer 5

If you now own the title for the new home, then you have the option of refinancing or taking out a home equity line.
If I may suggest a home equity line of credit (HELOC) Again if you own the title, then it should be easier and quicker for you to obtain a HELOC. It will also cost you less in fees intitially. You can make a lump sum payment with our worrying about pre-payment penalties. And, if you ever need to tap into the equity of your home, you won't have to go thru the process of getting a new loan.

Answer 6

6 months ago definatly good canditate for refinance but make sure you dont have a pre-payment penalty. If you do than a heloc or closed end second is your best avenue. If you refinance the entire home and cashout make sure you state is to consilidate bill or purchase a car. Dont tell them its for your brother in law because no one is likes to give money to the private. Also stayaway from online companies like lowerbills and lending tree just lead companies that sell your information for about 3 months and than you get calls for the next 5 years

Answer 7

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Answer 8

these are all very good questions, adn you should seek an expert on this to go over the entire situation.
go to lowermybills.com and put in your info and someone will call you to talk about it. i used them last year for a refinance adn it worked really well.