refinance w/ taking cash out OR home equity loan?
Friday, 27. August 2010
So, I am in a situation where I had a good job for years w/o a degree, bought a condo, got laid off and now working again, but I think the real solution is to go back and finish my bachelor’s degree. In order to do this, I would like to quit my job this fall or sometime next year to finish my junior and senior year full time instead of just going part time. One thing is for sure and that is I start my junior year of college this fall, I just don’t know if it will be full time or part time. The college is night classes which makes it good for the part time option. The problem with not working and going to school full time is making my mortgage payment. My condo is worth 240K from the bad economy and have a 190K loan against it. (I had a good down payment from a previous house sale). My current APR on the condo is 5.875%. I got a GFE on a basic refinance (5.125% w/o points or fees) and it came back I would pay 10 per month w/ taxes instead of the 15 per month I’m paying now. I’m also considering not refinancing because it is only a 5 savings per month and I plan to sell in 3 years after I get my degree. If I don’t refinance, I am thinking of going with a line of credit (home equity loan) with the bank I have the home loan with and then quit my job when school starts. I would then use the money from the line of credit to pay my mortgage while I’m in school. I think the percentage rate was around 6.5%. I wouldn’t need to use the home equity loan until my senior year of college though. I currently have ,000 severance from the lay off I plan to use during my junior year to pay my mortgage. Then when that money is gone, I would plan to use the line of credit during my senior year. I like the line of credit because I only pay interest on what has been taking out. Second option instead of the line of credit: Instead of the home equity loan for my senior year of college, I could refinance the condo and "take cash out". I have not looked into this option. If I take ,000 out, I could put it in a CD for a year and then it would be used for my senior year of college to pay my mortgage. I know it is not a good situation for me, but I’m trying to make the best of it. Does the home equity loan sound better or the refinance?
Cecil Says:
I agree with Ghost, but what he forgot was that when you refinance, you are going to have to pay fees, closing costs and for an appraisal, totaling about $10,000…this may not make it worth it.
On the home equity side of things, you are most likely looking at an APR of around 8-9% unless you have a credit score in the 800′s and you will still have closing costs and an appraisal to pay for.
Ghost of Zeuz Says:
Two problems:
1. Home equity loans usually have a cap at 80% loan-to-value (LTV). 80% x 240k = 196k. With an existing loan of 190k, you can get a home equity loan of 6k.
2. Refinance loans usually have a cap at 90% LTV and come with private mortgage insurance (PMI). PMI adds at least $50 and perhaps $100 per month to the payment. 90% x 240k = 216k, less about 3k in loan fees, leaves 213k minus 190k (existing loan), means you might get 13k cash out.
bdancer222 Says:
Besides what other responders have said, you may find that your condo simply isn’t worth as much as when you purchased. You may have no equity.
It’s not a good idea to dump the extra expenses on your mortgage. Look into student loans instead. They can be deferred while you’re in school.
It also might be much smarter to keep the job and take evening classes. It might take longer to get your degree but you’ll be in a much better financial position.
Trevor Reed Says:
http://loanrefinanceadvice.com/refinance-programs/ has everything you need to know about refinancing, refinance rates, and what steps to take if you are interesting in refinancing.