Home Refinancing Update

Home Refinancing Update

I have stated that I would like to try to refinance our home. However, there have been some sticking points along the way such as:

  1. Do we have enough equity to refinance? I am not sure about this one and this a huge obstacle.
  2. Closing costs to refinance. At the moment I am more worried about paying the bills over the summer than I am coming up with closing costs.
  3. Getting a better interest rate and deal. Currently, our interest rate is 3.75% on a 15-year fixed mortgage, but with interest rates what they are you consistently see lower rates.

Those are the three primary reasons I haven’t pulled the trigger….until yesterday morning. While I haven’t refinanced yet I have been looking and talking to other lenders about our situation including our credit union.

However, I ran across an advertisement for a home equity product from one of the local credit unions. It works like this you need:

  1. You need an 80% loan to value (LTV) on your home. For example, if your home is worth $200,000 your mortgage can be no more than $160,000.
  2. The interest rate is a fixed 2.875%
  3. The loan is a maximum of 144 months.
  4. No closing costs AT ALL!
  5. Our payment would increase by only $30
  6. We would save over $20,000 in interest

What I love about this product is the low-interest rate and the quick home payoff. Plus if we use it we cut 18 months off of paying off our house. Yet there are some potential problems that we face:

  1. I am not sure what have an 80% LTV. In order to figure that out the credit union will have to do a drive-by appraisal where they look at what homes in the area are selling for. The good thing is that the market is pretty good in Providence. The bad thing is I have NO idea where we are. If we don’t have the LTV then we are out of luck for the moment.
  2. This product is not a traditional mortgage, but rather a home equity product. So we, in essence, we are borrowing the 80% of the value of the home, which I use to pay off my mortgage and then basically pay down this mortgage over the next 12 years. That is the reason they don’t charge any closing costs because it isn’t really a “traditional” mortgage.
  3. We would have to keep track of the taxes and insurance ourselves. Traditionally, as most of you know, your taxes come out of an escrow account and home insurance. Instead, I would be responsible for paying the taxes. The great thing about escrow is that you don’t even think about it and the bank takes care of it for you. Now I am responsible for this aspect. I don’t actually mind, but it is kind of a pain. I have to make sure I set aside the money every month and not dip into it.
  4. I am waiting for the too good to be true side of  things. I have done my due diligence and looked up things, but I am just waiting for the other shoe to drop and say that there is something wrong with the program.

As of right now they are just sending the paperwork over so they can check our income and the like. However, without a good appraisal it doesn’t matter what we do the refinance might not be available. Wish us luck.



2 thoughts on “Home Refinancing Update

  1. I have read that you want to ensure it’s a Home Equity Loan and not a Home Equity Line of Credit–to ensure that your rate (as you say above) is fixed and not variable or subject to fluctuation. It sounds like you get 12 years (144 months which is 3 years less to pay off than your current 15 year loan)–just make sure that there are no prepayment penalties. It doesn’t sound like much of an increase in payment though and if no closing costs, that sounds great. Good luck!

  2. You are right Heather that is one of the big things that I also need to find out is about the any prepayment penalties. I am not too worried about it. I mean if I can’t prepay then I just pile up cash and pay it later.

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