Finance Question

[eyepatrol]

I was wondering if someone could tell me if there are any benefits to consolidating loans and refinancing a mortgage?

[Umma Gumma]

I'm not a mortgage or finance person, but there could definately be benefits.

What determines the amount of potential gain on such a transaction is the amount of credit/unsecured debt you have, the interest rates that the debt is at, the current rate on your home mortgage, and the number of years you're planning on staying in your house. Those are a few things to consider when doing this.

But, if you can refinance at a lower rate, take out $$$ to pay off credit cards, and have a lower or similiar house payment, it can be beneficial depending on how long you plan on staying at your house. It can also be beneficial to refinance, pull out some equity, and pay the same rate or a little more depending on how much credit card/other debt you have an what the interest rate is.

You could look at a home equity line of credit as a possible solution, as well.

Maybe that's more confusing than it needs to be, but hopefully it helps. Just be careful, and go with somebody you trust or that a friend/family memeber has dealt with in the past.

[MuskieJunkie]

Yea there are a lot, the biggest is that the interest on your 1st and 2nd home mortgage is tax deductible. Another is the rates are usually lower. The down side is that you will have to pay a fee to refinance, but that is usually offset by the savings in interest.

Borrowing money against your home is MUCH better than borrowing it against other items (cars, boats, snowmobiles, and especially credit cards).

[BigWadeS]

My wife and I recently went through this similar instance. Our decision was based on not having a fixed interest rate and with the rate going up every 6 months we couldn't afford not to re-finance. We used someone that gave us every option possible and found us the best feasible option. I can foward you that information if you are looking for the refinancing option [YouNeedAuthorization] at yahoo (contact us please) (Contact Us Please)

[eyepatrol]

That's what I was wondering. Good info guys! Credit card debt isn't a problem in our household. It's just that we have a mortgage, a house rehab/improvements loan, and then a couple vehicle loans and boat loan. I don't know if my mind is deceiving me, but from the calculations I've made, if we reduced our mortgage from 30yrs down to 15yrs, consolidated these other loans, we would have an extra $450/mo "spending" cash, plus we'd save around $55,000 in interest based on current re-finance rates and the rates we have on the vehicles and house rehab loan. Does that sound right to anyone?????

I know the best thing would be to talk to a finance agency, but I wanted to get some insight here before I take time to go speak with an agent, to see if it's even worth it.

A follow-up question....can a person consolidate onto the mortgage for an amount greater than the appraised value of the home? I wouldn't think so, but could be wrong.

[lawdog]

No bank is going to finance you beyond the appraised value or the mortgage wouldn't secure them enough, most won't go past a set percentage (I'm thinking 85% is probably it). The big plusses and minuses here have been covered lower rates than the car/boat loans and tax deductibility being the main ones. If you have a variable mortgage, I'd sure want to get into a fixed if you will be there long enough to pay back the loan fees, I don't see how rates can go anywhere but up in the next while... (although I would have wanted to do it a while ago actually).

We do have a mortgage guy sponsoring the site here, I'm sure he'd give you some advice!

[eyepatrol]

We're on a fixed rate right now. Don't think I could go with a variable. That's what I recall is there is a certain percentage a bank will only go up to on the mortgage and value of a home. My wife's main concern is that if one of us passes away, that the monthly mortgage payment would be too high for the other to make. Could be true, but then there's a whole other set of discussions surrounding that type of situation. She also made the point that if vehicle loans are consolidated, that you're paying 15yrs on the vehicles and if/when we were to trade in for another vehicle, that essentially we're making 2 payments on one vehicle (or 4 payments on 2 vehicles). Which is a good point also.

Looks like there are pro's and con's to consolidating, it just comes down to what we feel comfortable doing.

Maybe JP will chime in if he sees this?

[Blaze]

bass - sounds like your situation is a perfect setup where a refi is beneficial and a good idea.

A WARNING about home refis, however: it is a slippery slope to refi your house and "consolidate" all your outstanding debt every so often just because your interest is "tax deductible". I know a handful of people who have really gone backwards in the big picture financially because it was an improvement in the short term. As a simple example, many people throw a 3 year car loan into their mortgage and immediately have some relief from the monthly crunch. Let's take a look:

Car loan: $15K/3yrs @ 6% = $456/mo

Rolled into a 30yr mortgage @ 6% = $90/mo

Immediate savings: $366/mo

Here's the BIG PICTURE, though:

Total paid on 3yr car loan with interest: $16,427.85

Total paid on the same $15K over 30yrs added to the mortgage: $32,375.73

Moral of the story: which is more important? The immediate $366/mo or the extra $15,947.88 paid in interest?

For some, the $366/mo is a legitimate answer, but I think that's the minority of people. The key is to not take your extra cash each month and "improve" your standard of living by spending it elsewhere. The people I talked about above all ended up with another car loan, boat loan, or some other toy loan within a year or two, and pretty soon they were right back where they started.

Don't get me wrong, I've refi'd myself, but had to learn the hard way as well. My suggestion would be to do the refi to drop your interest rate, but keep paying the same amount each month to pay off that additional balance you just added to your mortgage all the faster.

Just another perspective to consider, though probably not a popular one...

Blaze

[big musk411]

Here is my opinion on the changing from a 30 to 15 year mortgage.

This my not be in you best interest. For example you may may be paying 6-8% on the mortgage when you can get a higher rate saving the $$. Stock market has historically earnerd about 12%.

For example say you had the option of a 15 or 30 year fixed mortgage with a payment of either $2400 or 1200 respectivley. Option one go with the 15 year, pay it off and then save the payment funds for retirement for the 15 years after the home is paid for. Option 2 go with the 30year and save the difference. assuming a 10% annual return, you would have about $994,728 with option 1 and about $2,712,585 with option 2.

[eyepatrol]

Good points Blaze. Consolidating vehicle loans probably isn't the best thing to do. We aren't in any desparate need to lower monthly payments, and I certainly don't want to lose more money than we already are in interest!

We may though consolidate our house rehab loan to our mortgage. It's a 15yr loan. Our mortgage is a 30yr, of which we've paid 2yrs on it so far. According to my calcs, consolidating the rehab loan and going to a 20yr loan we'll increase our mortgage payment about $75/mo, but save A LOT of interest! (somewhere around $40,000 if I calculated it right)

I don't want to "unzip my financial pants" here too much, but here's the numbers I'm running:

Current Situation:

$115,000 mortgage @ 30yrs @ 5.625% = $662/mo (int. = $123,330)

$40,000 rehab loan @ 15yrs @ 7.25% = $365/mo (int. = $25,725)

Total debt = $155,000 Total Interest = $149,055

Refinance/Consolidate Situation:

$155,000 consol. mortgage @ 20yrs @ 5.875% = $1,100/mo (Int. = $108,840)

Keep in mind, these numbers are simple and rounded (don't include escrow, refinance fees, etc).

[eyepatrol]

Quote:

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you would have about $994,728 with option 1 and about $2,712,585 with option 2.

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I need to seriously reconsider my 401K contributions!!!

Good point though big musk411. If those were the numbers, I'd definitely consider it, but as I look at it, I'm dealing with much smaller differences. I wish we could go down to 15yrs also, but there's just too many fishing and hunting "necessities" I gotta buy each year. Just can't get myself to cut into that budget!

[New Yankee]

Basscatcher - sounds like you've got the right picture and ideas about combining the two mortgages and leaving the cars and toys off. One other thing to think about, and I don't know how valid it is in your situation, is encumbering your house to the extent it will make any future moves tough.

If you may be moving/relocating w/your job, lost a job, etc, if all of your debt is on the house, it makes some of that harder than it would be if you had more equity (bridge loans, advances on equity for the next house, selling it FAST because of life changes, and so forth). You probably can think of different situations, both good and bad that you might find yourself in the future. Having as much equity in the house as possible makes alot of sense usually.

[eyepatrol]

I agree. With the mortgage and rehab loan, we still should be in the good compared to the value of the house. I guess for just some clarity, we refinanced a couple years ago when rates were low, but we've owned the house for nearly 5 years now. Point being...we bought the house just at the right time....just before housing prices/values soared. Even though we have $155k put into the house (original mortgage plus rehab loan), it's worth more than that.....at least for now.

[Valv]

I am going through same situation right now, I mean today.

I am refi house since my rates were higher, I have some business loans, student loans and C.Cards that are killing me.

I talked to some agents and I am going to 30 years again, they suggested not to do a 15 year because of the higher minimum payment, it's much better make extra payments when I can, and the loan lenght will be reduced automatically, but if happes that I cannot make the 15yr monthly payment for ANY reason I can end up in a lot of troubles.

I think the advantage I have right now rates are low and value of my property tripled in past 6 years.

[HarryG]

I used to work as a Loan Office that specialized in Refinance of bad credit people. I am not doing it amymore, but send me an email if you want more info. I will tell you all I can.

[email protected]

[LwnmwnMan2]

Here's what my wife and I just did.

We've got one mortgage that's a 30 year, but a cheaper one, $120k, which is being covered by my mother-in-law's rent, since it's a house that we bought next door.

We left that alone for now.

However, I just bought a new boat, $18k, had $28k in credit cards over the years that were running about 20%, and had a business loan in the amount of $60k, give or take.

My payments on all of those were running at about $3,500 / month, with $300 towards the boat for 5 years, the credit cards were about a $500 / month payment each, and my business loan was about $1500 / month for 5 years.

We took out a second mortgage for $105k, and are going to pay it off in 4 years, to cover this extra debt.

The two reasons are my payment is going to be about the same as the totals before, but the entire loan will be paid off in 4 years.

All of my vehicles are at 0% interest, so there was nothing to gain by combining those.

Plus, now I can deduct the interest on the credit card money, as long as the boat, since it's rolled over to a second mortgage.

You say your mortgage is 2 years old?? That's about how long our first on was, and the bank was decent enough to use most of that info, so they didn't have to rack up the whole $4k or whatever in costs again, it just cost us about $600, for the title work and some other.

You might want to go back to the original mortgage holder and see if they won't cut you some slack on the origination fees and such since you just had a appraisal and the etc. done.

[Eckie]

Basscatcher -

I'm in the business...I'd be more than happy to talk numbers with you to help determine if the possibility of refinancing makes sense (at no obligation of course). I've seen some good ideas and pointers from the guys on this post, you've gotten a good start on the research. Many times one can "recoup" closing costs/fees in a year or two, which helps justify spending the money or rolling it in to the mortgage. Let me know if and how you'd like to be contacted. Thanks,

Greg

Quote - "A follow-up question....can a person consolidate onto the mortgage for an amount greater than the appraised value of the home? I wouldn't think so, but could be wrong."

The answer to this is no. Most lenders will allow a client to borrow up to 90% of the appraised value of their home, but keep in mind if one borrows more than 80%, mortgage insurance is typically required and is not tax deductible. It's never a good idea to borrow more than the value of the home, even if you find a lender that would allow it. You don't want to end up "upside down" on your mortgage.

[luckey]

Basscatcher,

Lots of good points here.

Look at it this way. If you can make the same payment as today by refinancing the whole package, but end up paying it off in 20 years rather than 30 years, I'd say go for it. If you do it just to reduce the payment, there could be a problem. Also some one indicated to refi for 30 years to have a lower payment in a pinch. This is not a bad idea. Here is a simple way. Add up all payments on loans, house, rehab, boat, car etc. Use that as a bench mark of what you should pay, then make that payment regardless of what your new payment would be. (doesn't matter if 30 20 or 15 years) and you will come out ahead. This takes some dicipline so don't do it if you cannot commit to making the same total payment as you are doing today.

[ccarlson]

I think you are getting good advice to keep the autos off the long term loan.

I've just scanned the responses but one thing I don't think I've seen addressed is the concern your wife has about being able to make the mortgage and other payments should you die.

The consideration I would make is to be sure you each have adequate life insurance coverage to pay off enough debt (or all debt) for the surviving spouse. I would recommend a term policy as they are the most economical and work great at getting you through the "term" of your life when you need the most financial back up should you or your spouse die.

Take the interest savings on the refinance and pay for the life policy.

ccarlson

[Big Bobber]

One thought that may work for you is to take out an open ended 2nd mortgage, one that allows you to pay up as extra cash accumulates, and draw funds when needed. I have several clients who put most of their available discretionary cash as a payment against the loan each month. It helps minimize the amount of intrest on the loan, but also has the flexibility to borrow some extra money against the line as needed. It takes discipline, but it is a very effective way to control your interest cost. Remember, the minimum monthly payment is not an option. Your goal is to pay off the loan in five years or less. It is amazing how much discretionary income you can find to pay off debt if your payment is not limited each month. Also, when you see your loan balance drop on a monthly basis, their is more incentive to watch the balance reach zero.

[muc33]

As a lender, I would be happy to answer any question or lay down any "am schedules and rates" full disclosure to anyone. Call me up, this is what I do all day... when I don't have a hole in the ice and pole in my hand.

507-376-6161 ask for Chad M-F 8am-5pm

Willing to help anytime, let me know you are a fan of this forum!!!

[hartner62]

One more note, which ever way you decide to go make sure to explore the option of a bi-weekly payment. Basically instead of making one payment per month you would pay half of it every two weeks. This will help you to pay your mortgage off alot faster. example 23yrs on a 30yr. http://www.bankrate.com/brm/calc/biweekly-mtg/biweekly.asp

[luckey]

Bingo, Big Bobber! I think you hit one of the best solutions here. This method along with life insurance (on both) should get the loans paid off sooner (less interest = more principal paid) and give them peace of mind knowing the survivor won't be in the poor house. The only draw back is the Line of Credit interest may go up.

The thought of paying for a boat or car for 15 years is not an issue if you make the same total payments (or as mentioned using all extra money to pay down), just more going to lower the loans not paying interest. Good Luck

[eyepatrol]

All very good and sound advice. I appreciate everyone's comments!!! I'm going to copy all these responses and sit down with my wife to discuss.

Thanks everyone!

[Valv]

Quote:

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All very good and sound advice. I appreciate everyone's comments!!! I'm going to copy all these responses and sit down with my wife to discuss.

Thanks everyone!

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Man, Basscatcher I think there's something fishy here since me and my wife are doing same thing as of today.

There should be a "group meeting" for mortgage refinancing applicants....

One thing for sure, I found out, DO NOT get in a hurry, or get pressured, I am realizing it now, theer are too many "tricks of the trade" that shows up if you just sleep over an offer and think about it. I just discovered the company I was going to choose charges $ 11,000 in closing fees !!!! The excuse was based on my credit score not perfect (low average)....

[eyepatrol]

Wow! That's insane! That's what I call bank robbery, but only in reverse order!

If there's one thing my wife is good at, it's taking time to research all kinds of different options on the things we're interested in. I think it's rubbed off on me too (thinking back to all the research and questions I had on boat buying). You're right though, never jump in with both feet when it comes to things like this.