How to create a bank account ONLY for mortgage payments?

[Mark2365]

What is the name of your state? Well, I'm in Arizona, but. . .
My friend in California wants to refinance his personal residence.
The house is in Lake Forest, CA, with a value of about $700k.
Existing mortgage balance is about $230k. Thus, lots of available equity.

His FICO score is above 800, though he has now been out of work since late December.
He doesn't really Want any "cash out" from the refi; just to get a lower interest rate.

The problem: some finance people think the "current unemployment" makes this impossible.
A Solution?: sorta' like "creative financing": take $100k "cash out" and put those funds into
a DEDICATED account of some type that can ONLY be used for future mortgage payments.
That should satisfy a lender. Yes? No?
Questions:
WHAT type of account would that be?
HOW would it be created, to assure the lender that mortgage payments ARE Covered?

Thanks, people.
Mark2365

 

[adjusterjack]

A Solution?: sorta' like "creative financing": take $100k "cash out" and put those funds into
a DEDICATED account of some type that can ONLY be used for future mortgage payments.

Are you talking about refinancing $330,000 and taking $100,000 and putting it aside just to make the mortgage payments?

No, that's not going to work. He has to get the loan first and if unemployment is an issue then he's not going to get it no matter what kind of gimmick he dreams.

OTOH, if he has $100,000 in spare cash that he wants to put into a separate account that he segregates just for the mortgage payment, that might convince a mortgage company to refi him, though I doubt it.

He already has a track record with his own mortgage company. Has he approached that one to see if something can be worked out?

 

[Taxing Matters]

His FICO score is above 800, though he has now been out of work since late December.
He doesn't really Want any "cash out" from the refi; just to get a lower interest rate.

The problem: some finance people think the "current unemployment" makes this impossible.

Not impossible. It is still possible today to get a no documentation mortgage (sometimes called no doc mortgages) where it is not necessary to submit income verification. The problem is that the interest rate on these may be higher than he wants to pay. He simply needs to shop around with some mortgage firms to see what's available out there.

 

[zddoodah]

Your post doesn't really raise any legal issue.

A Solution?: sorta' like "creative financing": take $100k "cash out" and put those funds into
a DEDICATED account of some type that can ONLY be used for future mortgage payments.
That should satisfy a lender. Yes? No?

You'd have to ask a lender.

WHAT type of account would that be?

A restricted checking account.

HOW would it be created, to assure the lender that mortgage payments ARE Covered?

Your friend would have to discuss with a couple local banks if they would be willing to set up accounts that could only be used for this purpose. The problem, of course, is that, in order for the restriction to be of value to the lender, the lender would have to have some kind of recourse against the bank if, somehow, the money is pulled out and/or used for some other purpose, and I cannot conceive of any bank being willing to agree to something like that.

 

[Mark2365]

Yes, AdjusterJack, that's precisely it. Refi $330k, and put $100k in that "special account".
OK, we'll look into whether or not a spare $100k is available somewhere.
Nope... he hasn't yet discussed this with the existing lender.

Brilliant! YOU initiated this idea, ZdDoohah.
The Lender must have Recourse? B.S.
The Lender Is The Only One Who Has Withdrawal Privileges On The Account.
THAT could work,. . . right?
Of course, Homeowner must approve any amounts over the regular monthly payment.
And the Homeowner can make a balloon payment at any time, with no pre-pay penalty.
?
You're right... no real legal issues, just advice from the experts.
Thanks.
Mark2365

 

[Just Blue]

Yes, AdjusterJack, that's precisely it. Refi $330k, and put $100k in that "special account".
OK, we'll look into whether or not a spare $100k is available somewhere.
Nope... he hasn't yet discussed this with the existing lender.

Brilliant! YOU initiated this idea, ZdDoohah.
The Lender must have Recourse? B.S.
The Lender Is The Only One Who Has Withdrawal Privileges On The Account.
THAT could work,. . . right?
Of course, Homeowner must approve any amounts over the regular monthly payment.
And the Homeowner can make a balloon payment at any time, with no pre-pay penalty.
?
You're right... no real legal issues, just advice from the experts.
Thanks.
Mark2365

Is this the friend you are posting about?

https://forum.freeadvice.com/threads/can-the-widow-refinance-to-get-another-va-loan.659275/

If it's the same "friend" please keep all questions to one thread.

 

[adjusterjack]

Yes, AdjusterJack, that's precisely it. Refi $330k, and put $100k in that "special account".
OK, we'll look into whether or not a spare $100k is available somewhere.
Nope... he hasn't yet discussed this with the existing lender.

As I noted earlier, the problem there is qualifying for a refi with those conditions.

But here's another problem.

For illustrations purposes let's say his $230,000 balance is at 4.5% and he's paying $2000 per month P+I. It will take 12 and 1/2 years to pay it off and the interest paid for that 12 years is $71,651.

Now he takes out a 30 year loan for $330,000 at 3%. P+I is $1304 per month. After 30 years he will have paid interest in the amount of $139,404. His first month's interest paid on the loan $687.50. His first month's interest earned on the $100,000 is probably around $100 and will decrease every month as the $100,000 is depleted.

You can use this amortization calculator to run different scenarios:

http://www.bretwhissel.net/cgi-bin/amortize

The idea doesn't make any financial sense no matter how you slice it.

 

[Mark2365]

No, Blue, it's not the same friend.
That VA refi was completed on the house in AZ, and we did not need the VA Certificate of Eligibility.
To wit,. . .
https://www.benefits.va.gov/homeloans/documents/circulars/26_19_17_change1.pdf
Page 1, paragraph 3, section b: replace with the following paragraph: “For IRRRLs, a COE is now required, except in the following three situations:
1) . . . irrelevant . . .
2) The entitlement encumbered on the loan being refinanced belongs to the surviving spouse of a Veteran.
3) The entitlement encumbered on the loan being refinanced belongs to a Veteran who has since passed away and the IRRRL borrower is spouse who was also a co-borrower on the loan being refinanced.
All is well, there.

This other friend is in CA.
Jack, his current loan is at 4.25%, paying $1996 monthly for PITI, with 19 years remaining.
You may be right. . . this may be a waste of time?
Further calculations are needed.
Thanks very much, people.

 

[adjusterjack]

Jack, his current loan is at 4.25%, paying $1996 monthly for PITI, with 19 years remaining.
You may be right. . . this may be a waste of time?
Further calculations are needed.
Thanks very much, people.

It won't waste too much time talking to his lender and a few others.

Here's a scenario that does make sense.

$230,000 loan at 3% for 15 year. Monthly P+I is $1588. Loan is paid of sooner, less future interest. New payment with T +I around $2100.

You have the calculator now. You can tweak the figures.

Again, the unemployment is an issue. He might have to wait until he's had a job for a year before trying to qualify.

One last thing to consider are the front end costs of getting a refi. Usually several thousand, often rolled into the loan.