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Mortgage / refinancing question, part 2 - mikebw - 05-06-2008
(http://forums.macresource.com/read/1/488463)
So I spoke to a mortgage broker, he had an appraiser look at current property values in my neighborhood and they determined that the value of the home is pretty much less than the amount we owe right now, but about 30K, "So a refinance right now would not be possible".
So is that it? I mean if I called up some place like Bank of America (who is servicing our first mortgage now) do you think I would get a different story? Is it a bad idea to pursue that even if they say they can do it?
I still have 4 years left before an interest rate adjustment on the ARM loan, but I don't expect rates will remain this low for that long. Do I have any options?
Re: Mortgage / refinancing question, part 2 - Chupa Chupa - 05-06-2008
That is the story all across the US and a big part of the mortgage mess. People signed up for teaser rate ARMs then when the ARMs reset to higher than market rates people could neither afford the new rate nor get a new refi because the home is worth less than what is needed to refi.
You can't really argue with valuations. They are what they are. Another appraiser might give you a different value but it will probably be within 10% of your original. But, of course, you are always free to shop around. Most lenders are VERY cautious these days though.
If you have a decent rate now just hold on and wait for home prices to go back up. They will, and it won't take a whole lot for a home to jump 30K in a year or two. I don't see rates taking a huge jump in the next four years unless inflation really spirals out of control a la the mid 70s to early 80s.
Re: Mortgage / refinancing question, part 2 - mikebw - 05-06-2008
OK, that's kinda what I figured. We are nowhere near trouble with our payments, but who knows what it will be like in 4 years. Hopefully values will go back up some and restore some balance.
Re: Mortgage / refinancing question, part 2 - thermarest - 05-06-2008
Hmmm...pretty interesting question. I've been thinking about it and I can't think of any way to get a loan from a new bank, so long as the appraisal is more or less accurate. But that is a substantial IF. Two ideas did come to mind:
1) Find an appraiser who will value the home higher. Could be one you hire and then take the appraisal to the bank (not sure if this would work) or shop around for a mortgage lender whose appraiser would give a more favorable valuation.
2) Dealing with BOA might be the best option. They have something to lose in 4 years when you default on your loan and go into foreclosure. I'm not sure they think that far ahead, but I know there are lots of banks giving favorable terms right now to avoid the costs and uncertainty of imminent foreclosure.
I have a friend who is $100k upside down on a (formerly) $800k house. Even though he is far from what would look like a charity case, his bank is going to simply forgive a large part of the loan when he sells rather than have him walk away and leave them with the headache of selling.
Re: Mortgage / refinancing question, part 2 - MacManMaz - 05-06-2008
Don't forget you are paying significantly more interest today as a portion of your payment then you will be in four years if you stick with the current loan. Every time you re-finance the clock starts over and you are paying less of the principle and more interest. You may very well be better off in four years with the current loan even if the rate goes up because there will be more going to principle and less to interest.
Re: Mortgage / refinancing question, part 2 - lost in space - 05-06-2008
What MacManMaz said. If you were to plot where your payment goes, interest vs. principal, over time, the curve starts out flatter (especially with a 30-yr. note) with most of your money going to interest. Every month a LEETL bit more goes to principal, but after several years (like ten on a 30-yr), the interest curve starts to drop. Near the end of the term of the loan, the interest curve drops a lot while the principal curve heads for vertical. So, you might get a short-term break by refi, but it could cost you more over the life of the loan.
But then this is moot if you think you'll move is a few years.
Good luck!
Re: Mortgage / refinancing question, part 2 - AlphaDog - 05-06-2008
[quote lost in space]What MacManMaz said. If you were to plot where your payment goes, interest vs. principal, over time, the curve starts out flatter (especially with a 30-yr. note) with most of your money going to interest. Every month a LEETL bit more goes to principal, but after several years (like ten on a 30-yr), the interest curve starts to drop. Near the end of the term of the loan, the interest curve drops a lot while the principal curve heads for vertical. So, you might get a short-term break by refi, but it could cost you more over the life of the loan.
But then this is moot if you think you'll move is a few years.
Good luck!
Related to this curve, you might want to see if your contract allows for any amounts in excess of the monthly payment to be applied directly to the principle. This is how many work. If yours is like that, adding a bit extra to each payment will eat at the actual principle of the loan. I haven't done any math, but, if your budget has enough flexibility, this might be a way to narrow the gap between the mortgage balance and the appraised valuation, putting you in a better spot for a refi down the road. As noted, a refi comes with its own downside, but this is another option right now.
Re: Mortgage / refinancing question, part 2 - Black Landlord - 05-06-2008
Do we know that mikebw has an amortized, and not interest only payment?
Re: Mortgage / refinancing question, part 2 - $tevie - 05-06-2008
He currently has a a 5/1 ARM (interest only). I actually read the first thread. :-)
Re: Mortgage / refinancing question, part 2 - mikebw - 05-06-2008
Yep. The first mortgage is a 5/1 ARM IO. So we are only paying interest on that for now, although we could pay more and have that apply to the principle.
But, since the second loan has a higher interest rate we are paying that down first, both interest and principle.