home equity or refin?
Monday, 30. August 2010
We paid 35,000 for our home and are on a 5 yr ballon note w/10% interest rate. We have been here going on 2 yrs. We would like to renovate the kitchen and bathroom. I currently have a small loan w/CitiFinancial. They sent a letter in the mail offering to refin our home w/ the interest rate 11%. The appraiser came out today, but we are not sure yet what the property is worth . We really have no idea how refinancing or home equity loans/lines of credits work,can someone please give us some sound advice please. I read over some of the questions posted here and Im starting to think we may be making a mistake by refinancing our home. Also one last question if we decided not to go with the offer from citi how is stuck w/ the appraisers bill??? thank you
I will be looking online for a mortgage broker as suggested ,meanwhile can anyone suggest a few good mortgage brokers. And wouldnt the Rate be determined by my credit currently 625. Also,is it fact that each inquiry will need a credit check and therefore it will post on my credit report which brings the credit score down 3 points per inquiry. I am concerned about this. Im currently at a 625 with a thin crdit file however Im slowly building my credit by making my pymnts to my vehicle and loan and credit card. I will be taking the advice from the posters and look for other alternatives or at best a lower rate. Thank you all very much
I understand that the appraisal fee’s are coming out of my pocket if I am to take the loan through citi financial but they did not say anything about who covers the fee if I dont take the loan. Could I be the one responsible even if I turn there offer down?
Kurt B Says:
First you need to understand what a 5 yr ballon note is. That means you make a monthly payment based on a 30 year amortization (the same payment a 30 year loan would have at your interest rate of 10%) for five years, then BOOM you have to pay the rest off all at once.
This means you will have to refinance in 3 years anyway, unless you have enough to pay off the house (which means you shouldn’t have to borrow money to do the remodel).
Since you are headed for a refi in the next few years, looking now is a good idea. The Citifinancial offer is not a good one. You should be able to get a 30 yr fixed rate loan at much less than 11% interest.
The difference between refinancing, a home equity loan, and a home equity line of credit is in how you get the money and how you pay it back.
A refi allows you to pay off the current loan, and if you have equity built up (probably not much after the short time you’ve been there) to pull out that equity as cash. You will then make payments for the term of the new loan.
A home equity loan is often considered a second mortgage. You can pull out the built up equity in the form of a loan. You will then make payments on your current loan AND on the home equity loan.
A home equity line of credit is a loan that gives you no money up front (usually). Instead you are given a line of credit that you can borrow against. If you make no withdrawals, you make no payments. If you make withdrawals, you make payments. Again the amount is tied to the equity you have built up in the home. Usually you will get a check book or debit card tied to the line of credit. When you write a check or charge on the debit card, you are making a withdrawal and payments will start the following month.
You will be paying for the appraiser no matter what. Citi may say they are paying for the appraisal if you get a loan through them, but you will pay closing costs that include the appraiser’s fee. Since you are paying for the appraisal, you get to keep the appraisal. This means that once the report comes in, and you have paid for it, make sure Citi gives it to you. You can use it for applying for a loan at any lender, so you won’t have to pay twice.
Hope this helps, and good luck!
coolmommy Says:
appraisals are usually about 300. Why on earth would you pay 11% that is waayyyyyy too high. Current rates are around 6.75% for a 30 year fixed loan. I would recommend a refi to take the cash out for the remodel because you will definitly get a better rate with a first mortgage then a home equity loan. If I was you I would call a mortgage broker and shop around before you do anything else.
james k Says:
don’t mess with this. havent you seen all the home foreclosures? get a bank loan for home im[provements and if you dont qualify for that, oh well, forget it. after two years at 10 % you have no equity in home anyway….man you are headed for disaster. DONT DO IT!
go ahead and pay off the note and own it! renovater and sell it…get a better one….property values will be up and you will make enough for a upgrade AND you will be further up the learning curve/food chain!
theygrewagain Says:
was the 35,000 a typo?
I can’t imagine your equity has raised enough to justify/cover the closing costs/fees of a refinance.
Why not just save up over the next year to pay for your remodel/upgrade.
stan c Says:
Find yourself a mortgage broker since you are not familiar about financing. You might have to pay a few dollars to the broker but it’s worth it. If you go for a 30 year mortgage, get a amortization so you’ll know exactly how much you’re paying. You can also pay down the mortgage. Make sure it’s an open end mortgage.+