Refinance a home loan?

Question

We have an adjustable mortgage w/a balloon at the end. Our current interest rate is 7%. We pay $2119 a month ($1654 plus $465 for taxes). Beneficial is trying to get us to refinance with them. They have offered us a fixed rate loan at 11% with $9,000 cash out, a $15,000 "personal credit line" and they will pay off $14,000 in bills ($3k for our car, $1k NYS taxes, $10k student loans). The problem is the new payment will be $2828 and that DOES NOT include our taxes. Beneficial keeps making it sound like it is a big help to us but I don't see it. I think $2828 a month is a HUGE payment that we might not be able to make. The $10k in student loans they are paying are not even due for another 2 years so that isn't reducing my monthly debt. I guess my question is ...does anyone here think this is a better situation than what we have now?

The current loan amount is $259,622 and the balloon is not due for 30 years. The new loan amount would be $288,000 with no balloon. Our credit scores are only 600 so not sure if Beneficial would consider a lower interest rate for a fixed mortgage.

The loan Beneficial is offering is a 90% loan to value. They claim they have to pay off the student loans to get our debt to income ratio in line. I called our current mortgage holder this a.m. and they agreed to cancel our escrow lowering our payment to $1653 a month. We have enough in our escrow remaining to pay the taxes coming up in 2/08 so we have 9 months before the next tax bill is due. Beneficial also told me last night that the "origination fee" is $12,500!! They say it is a standard fee that is spread out over the 40 year loan. Plus they had a bunch of other fees that added up to a bundle. Our house appraised at $325k so we still have equity in it.

Answer 1

Well, I definitely would not roll the student loan into the house. Second of all refinancing to a lower interest rate should be priority. If your rate is adjustable yet lower than what you could get stick with it. It wil eventually adjust higher in a range that makes it better to refinance. Basically you pay $1654 a month for your house @ 7%.
You need to find a fixed rate option for at least 6% or less to make it worth doing anything. If your balloon isn't due for 30yrs you have some time.
Can you afford where you are at now? If yes hold on, because the FED is going to drop rates 3 more times. Then I would look at a refi, but don't consolodate the student loan. Unless it is substantially high interest.
The key factor here is where are you in your loan to value ratio. Basically you don't want to take a loan out for over 80% otherwise you pay anywhere from .5% - 1.5% of the loan in fees. On your size loan that is almost $3000. That is too much. Essentially what you need to do is wait, look at where you have your money and move it around to get to that 80% mark. Or try to pay down the mortgage to get some equity. That will also help your credit score. 11% sucks, wait it out and look at Loan to Value. 80% is ideal, 90% isn't that bad, but over 90% is when the fees start to pile up big time. So be careful.
Look at another lender, they don't seem to have your best interests in mind

Answer 2

This is a great solution for Beneficial, but a terrible solution for you. To go from a 7 percent to an 11 percent loan and get into even more debt makes no sense. You can make a counter offer to beneficial, but they will probably not consider it. You should offer:

Refinance the current loan with a 30 year fixed rate 6 percent loan,
Cash out $7,000 to pay off the car and NY tax and put a $3,000 reserve in a bank savings account.
No more than 1 point for the refinancing, rolled into the new loan.

You could go as high as 7 percent simply because refinancing would avoid the balloon payment. You don't say when the balloon is due nor do you give the amount of the current loan, so I can't advise you on the best course of action.

Answer 3

Don't go with Beneficial.

If you can, try to get a fixed rate loan through your bank or credit union if you want to refinance your mortgage.

Answer 4

Run...do not walk away.

You would end up paying interest on a car, taxes and student loans for the next 30 years.

Beneficial preys on people on bad financial situations where they do not have a choice. You sound like you have choices. My choice would be to run away.