Refinance vs. Home Equity Loan in Pennsylvania

[jmm1101]

What is the name of your state? Pennsylvania

Hello all. My husband and I are getting ready to either refinance or take out a home equity loan. I was wondering if someone could help me with the pros and cons of both. Here are the facts.

Original mortgage 12/02 = $193,500
Current balance = $180,000
Current HELOC balance = $22,000

In addition to paying off the above (well refinancing I guess), we intend to pay off 2 cars ($22,000), credit card debt ($15,000) and 401(k) loan payoff ($15,000).

If refinancing, we will refinance for $255,000 at 5.625%. However, would taking out a home equity loan for $75,000 be a better way to go? It would make our monthly payments higher, but only for 10 years, as opposed to refinancing and basically wiping out the 5 years of mortgage interest that we have already paid. That way, in 10 years, we'll have paid off the home equity loan, and be 15 years into our mortgage. Does that make sense? I hope so. Home equity loans from my institution are currently 6.99% for 10 years and 7.50% for 15 years. I am really only looking at the 10 year option.

Thanks for your help!!

Jackie

[VeronicaLodge]

is your house worth that much now? how long do you intend on staying in the house? do you plan on changing your spending habits so that if you wipe out all that misc debt (actually just moving it to your house) you won't rack up more debt?

If the house was worth that much or more and I was planning on staying in it for a long while and I was not going to rack up any more credit card debt or 401k debt, I would do the refi.

obviously this isnt really a legal question but you are just looking for opinions right?

[Cedrus]

I did not know HELOC loans come with a fixed rate. Thought they were adjustable with an option to convert to a fixed rate later on. This, I think, would be the same rate as a second mortgage.

[prophecy]

WARNING ! dont use the Select capitol group,out of pittsburg,pa. they have destroyed our lives ! we tried to refi thru them. the loan officer made some illegal moves,gave bad advise, not to mention lied,and covered up.and his boss made promises of refunding my apraisal costs,and said the check was sent....that was last june. in 07,havent got the check either. its jan 27th 2008 we lost our refi,and almost our home due to these guys!please be careful!
note to those who refi: wherever you have an exsisting mortgage thru, i would either refi thru them if your happy with them, or call your bank,whom you did business with before!

[Grandma's house]

27 yrs. here in the biz...NO NO NO ON THE HELOC...YES YES YES ON ONE MORTGAGE...Refi the mortgage, credit cards and the 401k all into ONE loan. Do NOT payoff the cars with the mtg. (you ought to have a LOW rate on the cars do you not?) also...how is it going to make you feel when in 3-5 yrs. they will be the OLD cars, gone and you will want new ones and you are still paying for them??? As for credit cards...if you are sincere in detroying ALL but 1 single major card for emergencies then pay them OFF. Their rate of interest is killing us/you. Get rid of credit card debt. close the accts. and keep a gas card and ONE emergency card only.

getting a heloc is not a good move at all. Why? The prime just dropped .75% and they are going to drop it again this Weds.

Further...(Wait at least another month or two AT LEAST to do this or lock the rate...they ARE coming down as they did in the early 2K. Trust me I know. They HAVE to.

******The smartest move you could make of your life????...get a 15 yr. mortgage. if you got a 15 yr. mtg. in the 4's rate, vs. a 5.625% 30 yr. term the payment differential is absolute minimal. The long term investment PRICELESS ABSOLUTELY PRICELESS...OH...AND DO THE BI-WEEKLY PAYMT. VS. 1ST OF MONTH PAYMT. YOU WILL PAY IT OFF IN 12-13 YRS.

[tuffbrk]

You've been in the business 27 years and you're recommending a bi-weekly mortgage payment?!! Really?

OP - ignore that advice! Instead send an extra 8-10% of your monthly mortgage payment each month and have it applied as a curtailment. It directly reduces your principal and you will pay less interest the very next month. Send a curtailment each month - you can cut the length of your loan repayment, and interest paid to the lender, by a large percentage. The exact percentage will vary based on the curtailment made.

Also - HELOC vs HE loan...depends upon your financial discipline. I'd recommend a HE loan over a line of credit any day of the week. A benefit to the HE product is that many lenders charge minimal, if any, closing costs.

As to if you should refinance vs obtain a HE product - discuss that with your mortgage lender. You didn't note the mortgage product or interest rate and without your financial picture - it becomes difficult to provide an educated answer. What I will say is that if you obtain either, you should apply with your existing servicer. Since they are already privvy to your information and loan history, you will close more quickly.

Good luck.

[Grandma's house]

oh please...tuffbrk...get a grip. The bi-weekly deal works and it is an auto debit. How many people do YOU really know that are disciplined to do this extra paymt. on their own? Regularly? Please.

A whole new first going F.H.A. (can do debt. consol. to 95%) is her best bet vs. a 2nd and you know this. She won't be able to write off the interest of the 2nd if not used for H/I and you know this too. Rates ARE coming down. Doing a 15 yr. term is by far the best long term investment and you KNOW this.

With rates coming down she is looking at a rate in the mid to high 4's very soon. I locked 14 loans the other day at 5.375% when they first dropped the prime for those that were near closing. You know the 15 yr. terms were in the 4's. It is equivalent to what she is probably paying out now with the c.c. debt etc...

[tuffbrk]

Your mortgage payment can be a monthly debit too. Who are you kidding?! It can be set up with the servicer or with your bank without any cost. The servicers make out on financially uneducated consumers with the help of folks like you. All the mortgagor is doing is making one extra payment a year. Period. The end. The monthly curtailment is immediate, its effects are immediate and it pays the loan off faster. Let me guess - you get commission on cross sell of services don't you?

So far as refi vs a HE product - I'm not qualified to say w/out the pertinent facts in front of me. I've no idea what the current rate is on the existing mortgage to hazard a guess as to whether 5.375% is worth refinancing at this point. It certainly wouldn't be worth it for me personally.

I always recommend a 15 yr. when folks expect to stay in the home - presuming they can afford it.

[Grandma's house]

I told you the rates were coming down!!! I locked a ton more today at 5.375% again, also some 5% 15 yr. terms as well...They will tier up again tomorrow ...and I expect the feds. to drop another .50% very soon again...

The trick is...to lock asap...

[LindaP777]

Originally Posted by jmm1101

I was wondering if someone could help me with the pros and cons of both. However, would taking out a home equity loan for $75,000 be a better way to go?

Jackie

You need to go to the "pros & cons" forum.
This is a "legal" forum. Do you have a legal question we can help you with?

[Grandma's house]

Funny thing occured yesterday in the office. We had not even looked at the 5/1 and the 7/1 arms in so long because their rates were darn close (too close to being the same as the 30 yr. fixed) well...just for the heck of it I peeked and was shocked as were my superiors.

a 5/1 is the same as the 7/1 arm...4.75% fixed at par. Not bad eh?

Now if this op was only planning on staying in her home for less than???

Also...I take it you too are in the biz. With all the foreclosures going on...I have a complete different outlook as to what loans I will or will not do. (unless of course I get someone that INSISTS on it in which case I cannot deny them THAT loan)

Such as a 5/1 or 7/1 on a fixed income borrower. Even though the NEW guidelines are that they qualify at the fully indexed rate I just think it is a risk to these folks retired and don't intend on moving etc...

just thought I would throw this idea out there. That's all.