Will it be better to refinance after the pre-payment penalty?

Question

My brother and I just bought a house and it's a 5 year interest only loan and the mortgage is close to $4000 a month. We are basically having a hard time paying our monthly. Should we refinance already? It's been only 5 months and there's a prepayment penalty if we do it before 1 year. Please advise.

Answer 1

You already have an interest only loan, and rates are higher now than they were then. So you're going to add basically six months interest plus closing costs of the new loan to your balance, and get a higher rate. So your making payments on a higher balance at a higher rate, and you're hoping the payments will go *down*?

It really sounds like you are in a property that you cannot afford, which means you need to sell. I do hope for your sake that the market where you are is in better shape than it is here.

Answer 2

1. What are you going to refinance too? You already have the loan most likely to give you the lowest possible monthly payment. If you refinanced by taking out a new 30 year loan you would only get the benefit of having made 5 payments on 360. Plus the first 5 payments were mostly interest. I doubt it would even reduce your monthly payments.

2. Whats your interest rate at. Taking into account you probably won't get a big benefit based on what I wrote in #1 you are also probably not going to get a better interest rate and more likely to get the same or worse.

3. Unless you CANNOT make the monthly payments and would have to become delinquent on making payments I would not refinance. If you CANNOT make the payments then you probably need to do whatever you can to make them including considering selling the house and buying something that doesn't cost as much.

Answer 3

What all of the responses here are failing to recognize is the simple fact that you need help!!!

You have a monthly payment that just 5 months in you cannot afford... Now obviously selling is an option, but you bought the house for a reason.... Because its the house you like...

What everyone here is also failing to mention is that there ARE other program options out there that will give you a lower payment then an interest only loan...

Have you heard of a power option arm??? An option arm program actually gives you 3 monthly payment options each month..

You choose between full principal & interest, Interest only, and MINIMUM PAYMENT!!!

Minimum payment is what you are looking for... In most cases the minimum payment can be as low as 50% of the full principal and interest payment...(negative amortization)

For instance, your interest only is $4,000, which means your principal and interest is roughly $4,600... If you had an option ARM program, you would have a minimum payment option each month of only $2,300!!!

Now if you only pay the MINIMUM option each month, it isn't covering all of the interest due each month... So if you ONLY make that payment you would see interest added to your loan at the end of the year..

What most people do is simply take advantage of the flexibility of this loan.. When you have a bad month where unexpected expenses arise, you are only obligated to the MINIMUM payment..

When you have a good month, and no unexpected expenses come up, you can send the interest only, or full principal payment to offset the negative amortization...

Either way, if you r only make the minimum payment, as long as you are in an appreciating area, your house value will rise each year with the loan balance.. So you could get by without having to worry about your loan being more then the house is worth..

If you think this is something that makes sense to you, feel free to call or email me with further questions..

My name is Jason Fry, i work for Providential Bancorp.. We are a specialized mortgage lender serving most of the US...

Feel free to call me at 312-264-6448, or email me at [e-mail]..

I wish you the best!

Jason Fry
Licensed Mortgage Loan Officer
Providential Bancorp
312-264-6448

Answer 4

Hi,

In order to answer your question, you would want to do some simple calculations.

You need to add the total cost of re-financing the loan, including appraisal, closing costs, and pre-payment penalty. Then use this total to calculate how long the monthly savings on your new payment would take to equal the total of the costs of the new loan.

There are other considerations as well. Like the rate difference between the two loans ets.

You should call a lender or two and have them help you work it out.

Thanks,
Kevin
http://www.kevinscolastico.com

Answer 5

Well it depends on what the pre-payment penalty is I don't know what state you are in but every state has a different pre-payment penalty and if you only did your loan 5 months ago you will not get a better rate the rates have not went down as we hope they will. Wait until your year is up and then start shopping around maybe by then the rates will go down.

Answer 6

You will need an accountant to answer. There are many factors to consider: the current loan amount, the current loan rate, the pre-payment penalty amount, the loan rate on the new mortgage, the new loan payments, the closing costs for the new loan.
Your monthly payments are high, but what is more important is the total cost to you.

Answer 7

you need to find a broker who will be able to find you a bank that doesnt require seasoning! most banks require 6mo to 1yr seasoning before you could refi. only because of the market value in your home. if it hasnt appreciated a good amount in value it's too much of a risk for the bank your loan to value would need to be at least 80% because you would need to add your first and second loan together and then you would need to add your prepay to your amounts. if it exceeds the 80% than you will be in the same situation your in because you will have to get two loans and your interest rate will more than likely be higher if not the first the second. i would suggest though to wait out at least a whole year before considering refinancing. if you need help with your mortgage i would suggest maybe finding some renters that need a temp. place to stay at so that will help you pay your mortgage.

this is the best advice i could give you!!!!

Answer 8

The prepay means that you cannot refinance for 1-year.....if you already have an interest only product, how will the re-fi on (rate and termsince you will have no equity) help you?....do you think you would get a better rate? Sounds like you are in a house that you cannot afford....

Answer 9

Well in a loan officer with Archer Adams i can talk to you about it. I would need to see what rate you have that will tell me if i can get it lower so i can save you $
if you have a high rate you want to Rafi so you can get the best rate you can call me my name is Caleb 775-448-9600

Answer 10

once you refinance your position, your modern loan will be paid off. once you've pre-fee consequences, they could must be paid on the prompt besides. the completed loan disaster that you've been listening to about in the media refers to circumstances like yours. a lot of human beings such as you won't be able to manage to pay for to pay the pre-fee consequences with the intention to refinance to a decrease interest fee. you'll favor to time your refinance intently. examine with interior of sight loan human beings to make certain who you sense mushy with. Take a duplicate of your modern loan legal responsibility rfile with you with a view to propose you intelligently. you ought to are transforming into a duplicate of it once you closed on the sources on the time of purchase.