I was thinking about taking about a home equity loan to pay off my high interest loan, problem is I plan on refiancing this summer. is this a bad idea?
2007-10-10 01:59:34 · 5 answers · asked by american_bulldog25 1 in Business & Finance ➔ Renting & Real Estate
Possibly, because you will pay fees for this refinance and then again in the summer. You need to calculate the savings versus the added costs for a loan that will exist only eight months.
2007-10-10 02:02:24 · answer #1 · answered by OPM 7 · 0⤊ 0⤋
Taking out an equity loan and refinancing are the same thing. If there are no closing costs on the "home equity loan", then you really don't have much to lose aside from the equity of your home! Sometimes taking out a 2nd mortgage instead of refinancing the whole thing makes better sense on paper anyway (like if you already have a low rate on your first). It depends on your particular needs though. If you're in North Carolina or South Carolina, I can help you further.
**CHECK YOUR PAPER WORK** There may be penalties for paying off your 2nd mortgage (your new equity loan) early.
p.s. ALL loans on a house are equity loans, since you are borrowing against the equity of the home. Some lenders just refer to 2nd mortgages as a "home equity loan", or a HELOC (home equity line of credit). A mortgage is a mortgage, no matter what lien position it's in.
2007-10-10 10:54:13 · answer #2 · answered by Shawna Marie 3 · 0⤊ 0⤋
You may have to payoff the equity line also in 8 months. Reason being - you will have a first and second lien on your property. Once you refinance the first, your equity line will move to first lien position - your NEW lender on the refinance will want the equity line to subordinate to 2nd lien position - Some banks will accommodate and others will not.
Additionally, MOST equity lines are adjusting rates (usually monthly) and are tied to the PRIME rate. Right now - rates are 7.75%. Equity lines can be prime + or - (%). Banks are absorbing the cosing costs associated with an equity but your payments can go up.
Ask yourself what happens in 8 months in order for you to do the first lein refinance. If you need to wait for a prepayment penalty to expire - then do so - if it just because that is when your ARM is ready to adjust - look at rates now.
Closing costs vary by state but there are costs associated with refinancing. You can always get a courtesy equity line after you refinance the first but you may be better off combinign ALL the debt into the first.
Good Luck
2007-10-10 09:21:39 · answer #3 · answered by Shannon B 2 · 1⤊ 0⤋
It's often more expensive to do it that way, but it's not neccessarily a bad idea. Look into doing a refinance with cash out to pay off the loan now. With the real estate market being the way it is there's no guarantee your home will be worth the same 8 months from now as it is today.
It's probably easier to do the whole loan now if you have the value and qualify for good terms on the mortgage. Otherwise you're either paying extra interest on the equity line or an extra set of closing costs that are unneccessary.
Find a good mortgage broker or banker that's been referred to you by friends or family who have used them. Give them your whole situation and plans then let them run the costs both ways for you. Please keep in mind that most brokers and bankers are paid off the size of your loan amount. Unfortunately some unethical professionals would pressure you to do the larger loan amount without running costs for both scenarios. Make sure they run costs for accomplishing this both ways for you to compare, don't let them pressure you into going with the larger loan without making sure it's the best deal for you. A good broker or banker wouldn't do this, but there are bad ones in both fields.
2007-10-10 11:05:50 · answer #4 · answered by matzael 3 · 0⤊ 0⤋
Why don't you just do the refiance and take out some equity. You are talking about two transactions that will cost you money. Why not do it in one and save some money?
2007-10-10 09:10:05 · answer #5 · answered by Alterfemego 7 · 1⤊ 0⤋