To Good To Be True Home Equity Loan

[wonka27]

Alright, if this is correct, which I think it is...I feel like such a donkey.

Being a home owner of 1.5 years now, I have never really thought about home equity. We financed 100% through one of those 80/20 piggyback loans. The main mortgage is 5.875% and the "piggyback" second mortgage is 7.45%. Both loans are 30 years, but I am currently setting a torrid extra payment schedule that would have both loans paid off in 18 yrs. If you wondering, yes, we did buy much less house than we could have afforded. I like playing things safe!

Anywho...so I was at the bank yesterday working with a service rep on a saftey deposit box when I saw their pamphlet for home equity. It said rates starting at 5.25%. Not expecting a possitive answer, I said, "is it possible to refinance a piggyback loan for the better rate and maybe to take a little money out?" She said, "sure it is! How much did you want to borrow and for how long?" I gave her the number and length of time (10 years)...and she said our rate would go to 6.24% on the second loan and would only be paying $50 more a month than I have been...given their would be about $20K cash out.

Then, she tells me...also there are absolutely no fees whatsoever and we most likely won''t need an appraisal (I guess they use a formula based on the assessed value of the house). If we do need an appraisal, it would only cost approx. $100.

I''m just stunned that I didn''t know this. Usually I''m up on matters of money. I probably could have refinanced upon purchasing the house!

What do you guys think of this??? Is this a believable deal because it is with a credit union? Even if there isn''t enough equity to get the money out, just refinancing for the lower rate seems worth it! With rates like this yet...it is like they are giving money away for free!!! BTW...we do want to remodel our kitchen and bath...so there is a purpose for the extra money.

 

[moremoremore]

wonka...i'm not sure what state you're in and i'm not sure if I'm following completely...but a home equity loan is a completely different animal than a refi and it is impossible (at least here in NY) to refi with no closing costs...the mortgage tax alone can be several thousands of dollars ... then there is title insurance which is going to be a couple of grand...again, not sure where you are located...Are you planning on living there for a long time? If yes, then a refi for a lower rate can be a great idea...if not, it's just a waste of $ imo...With a home equity, there aren't usually more than a couple hundred (if any at all for the most part) in fees...

 

[Dee*Jay]

Wonka - There are two different types of loans and people often refer to them interchangeably, but they are not the same.

Do you have/are you looking at a home equity line of credit with a floating rate or is it a loan (i.e., second mortgage) with a fixed rate?

If it's the latter at that rate that run, don't walk to the credit union to sign the paperwork. If it's the former, then the rate they're quoting you may be the current rate, which can float in relation to prime (so prime plus X%). In that case see if there's a cap or if you have a potential unlimited rate in the future. Also ask if your rate could go lower if it's a floater.

There is a third option that I'll throw out there, which is a loan where the rate would be locked for a period of time and then float, but this probably not what they're talking about since it's a secondary loan and they generally aren't structured in that way (although it's not impossible).

As for the fees... there is no free lunch. The lender is getting paid somehow, it is just not transparent to you. Think of it like this, if they charged you fees up front the rate would probably be lower, but since the fees are being wrapped in in some way you're really paying a higher rate. Ask if there is an option to pay up-front fees and get a lower rate. It will save you $ in the long run.

 

[wonka27]

Thanks for such quick responses.

This is definately a Fixed Rate Home Equity Loan!!! (90% loan to value ratio). Actually here is the site with the rates!

As you can see they have pretty quality fixed rate offerings.

I was pretty specific with the lady concerning the two loans and what I owed on them and said 80/20 and piggyback (you know...all the proper terminology. The sad thing is, we actually have accounts in three credit unions...and they all have comparable rates. It just seems too awesome...especially with rates having risen.

I''m just hoping she understood me properly.

 

[Dee*Jay]

Wow--that''s awesome! I have clients who would kill for a deal like that!

 

[wonka27]

I just wanted to update this thread for anyone thinking about Home Equity or Refinancing.

My credit union called today. We were approved for our home equity loan. I can''t believe the deal!!!

10 yrs, 6.24%, $0 fees, no appraisal, no begging, no nothing. I''m stunned. And part of this Home Equity is paying off a second mortgage...so we are leveraged to the max. And the rate is absolutely fixed!

So advice to anyone looking to refinance or get home equity...check out credit unions if you belong...or can belong to one. This particular credit union requires only that you live in the county where it is located. A $5 deposit into a savings account could get you a loan like this. I am ultra impressed and thrilled to death. This will really help put our Kitchen and/or Bathroom projects in a good place!!!

 

[movie zombie]

"When home- owners refinance the purchase-money loan on their homes, their liability changes. California code does not protect the property owner from personal recourse when this loan is refinanced. Be aware that lenders can and have judicially foreclosed refinanced home loans and obtained a deficiency judgment against the property owner. "

http://www.scotsmanguide.com/default.asp?ID=208&part=1

not suggesting that you''ll ever be in a position to decide to let your home go back to the lender but one should be aware that a refi does not carry legal protections afforded by an original loan in california and a few other states as well.

movie zombie

 

[Dee*Jay]

That's great Wonka--good for you!

BTW, another advantage of credit unions is that if you have a deposit there you're considered a member and if that financial institution ever goes public (which happens more than you know) you have the opportunity to buy shares at the initial public offering price. Financial industry stocks aren't exactly "sexy" but they tend to do ok in the long run (although past performance is no guarantee of future results).

NOTE THAT THIS IS NOT MEANT TO BE CONSIDERED FINANCIAL ADVICE AND IS IN NO WAY A RECOMMENDATION TO BUY OR NOT BUY ANY SECRUITY. Just thought you might be interested in knowing that in case your credit union ever does go public so you can consider your options.