I achieved my goal of repaying my second mortgage in August.
Now I’m without a financial goal other than to build up my savings to where it was before August.
But I can almost see my new financial goal taking shape on the horizon: tackle my first mortgage, which by the way is carrying a 6.25% interest rate. It makes sense to refinance my first mortgage, but it’s not that simple. Here’s why:
- I mentioned I’m under water on my mortgage. Even with my second mortgage paid off, I’m still slightly greater than the 80% Loan-to-Value Ratio the bank would require of me to refinance. This is all speculative because I wouldn’t really know the answer is until I get an appraisal, which would cost about $375 out of pocket. Something I don’t want to pay just to get a “yes” or “no” answer to refinance.
- Closing Costs would be about $2,600 on top of my out standing balance if I meet the Loan to Value Criteria and refinance. I know refinancing will be worth it in the long run, but that’s a good chunk of change given the fact I just depleted my savings.
OTHER OPTIONS
Option 1
I was speaking to a mortgage specialist at my local bank and she gave me a few options if I did not meet the Loan to Value ratio and this would be a FHA loan. The downfall of this option is that I would pay Personal Mortgage Insurance(PMI). This is something I don’t want to pay because it’s not tax deductible and additional money that is not going toward principle.
Option 2
This option seems to make the most overall sense, but I’m still trying to figure out the pitfalls. Instead of refinancing, I was told by the same mortgage specialist that I could apply for a fixed home equity loan bearing an interest rate any where from of 2.6% to 4.11%. The exact interest rate is determined upon completing my application and other factors such as credit score, type of relationship I have with the bank, income, and a few other factors that didn’t negatively affect me.
This option appeals to me because:
- A home equity loan doesn’t have closing costs
- The bank pays for the appraisal.
- The interest rates are more favorable than my current interest rate
All around, this option seems like the best for me. This will lower my interest rate for a 15-year term while costing nothing out of my pocket to “refinance.”
Do you see any pitfalls in this option?
photo credit: RambergMediaImages
I'm Mike, I rent out my spare rooms in my house to roommates. So far, the rental income has :
