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Jonathan | Need help deciding on mortgage! Please help!? |
Jonathan
I need help deciding on a mortgage? HELP!!!?
Purchase price is 198k Doing an 80/15.
8.5 on second mortgage heloc on all options
6.0 30 yr fixed 1 point origination
6.25 30 yr fixed no origination
6.25 interest only 30 year fixed 1 point origination
6.5 interest only no point
Should I do the 6.25 interest only and put the money I am saving on the first on the second since its a higher rate? I am planning on staying in the home probably more then 2 years. Probably like 3-4 years in home
Additional Details
Please do not sell me on your loan. This is a stated income loan so rates might be slightly higher. |
 |
 
Yanswersmonitorsarenazis
 |
Take the 6.25% no origination fee offer. If you're only there for 3-4 years, you'll either save or break even on the origination fee. Anything longer than 4 years, that's when you'd consider paying the point and taking the lower rate.
Taking a .25% higher rate on 80% of your money, just to apply more money to your second, is counterproductive. Also, since you'd be int-only on the first, you'd pay more in interest anyway since your principal never gets reduced.
The math is actually fairly straightforward. I'm using a $200K purchase price to get even numbers, but the overall figures remain basically accurate.
6.25% amortizing payment is $985. 6.5% IO is $866. You save only $119/mo.
On the amortizing loan, you will have paid off $8254 in principal after your 48th payment.
Your 2nd will be $212/mo. interest-only. If you add the $119/mo. you freed up on the first mortgage, you'll have paid off only $6746 after 48 payments.
Your idea will cost you $1500 in lost principal over the first 4 years. Paying the exact same amount.
FYI, current market conditions are making fixed-rate, fixed-term home equity loans more attractive than HELOC's right now. If your credit scores are good, a 95% 2nd should be available in the mid-7's. A 30 year amortizing payment at 7.5% is $209. $3 less than the interest-only payment at 8.5%. Talk to your lender about other 2nd mortgage options. Sometimes the closing costs will be more expensive (banks often pay costs on HELOC's and not fixed loans), so weigh that as well.
PS your lender should've been able to do all these calculations for you. Did you not ask or do they not know what they are doing? |
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Yoli
|
Go with the 6.25 interest only with 1 point origination. This is the best option, because as you said you can use your savings to paydown your "heloc", gain equity by doing so and because it is at a higher rate.
Make sure that your interest rate is fixed on the heloc. Since you say it is a heloc (Home Equity Line of Credit) I would make sure that your payment is principal and interest. Helocs tend to be like a credit card, payment is based on balance, variable interest and interest only if you pay the minimum payment.
Good Luck!!
http://www.wefundyourloan.com/ |
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ditto06
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this is all arabic to me....i have rented all my life!
good luck! |
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Brooke H
|
If you plan to stay in your house more than 2 years I would definitely suggest some of your fixed options. Interest only (obviously) won't pay down your principal and generally have variable rates. After you've lived in your house a while and built up some equity, you can always refinance and perhaps get a better rate. |
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godged
|
I like #2.
A couple other things to consider before you sign on the line. Do any of them have pre-payment penalties? Some loans have a pre-payment penalty if you don't stay in the house or keep that loan for a certain number of years. Check on that too.
Also, I'd like to see you comparing closing costs on these loans. CC can vary greatly, and you may save a bit on interest and get smacked for thousands on origination costs. |
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Charles
 |
If you plan to stay for only a few years, you are better off renting, especially when property is appreciating slowly.
If you rent instead of buy, and invest the difference in a good mutual fund, you will be far ahead financially.
Consider these factors:
BUYING
1. Cost of buying the property (loan fees, Realtor points, etc)
2. Cost of maintaining the property (experts say at least 1% of property value)
3. Cost of property insurance
4. Reality of mortgage interest deduction (for every $1 you pay in interest, you will save about $0.25 to $0.35 in real cash.)
5. Cost of selling the property.
RENTING
1. Deposit (refundable)
2. Rent
3. Renter's insurance
If you do a careful analysis, you will realize how wasteful it is to buy a property short-term.
Don't take my word for it, check out this rent vs buy calculator at the NY Times:
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?ei=5070&en=032f51ed8280ca64&ex=1180152000&adxnnl=1&adxnnlx=1180026421-gXu2FDxbgjqxrM8WU8XhZA |
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Ken
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The simple part is, I would not pay a point if I were only staying in the home for 2 years. You will save about $25.00 per month, but it will take you 5 years to recapture the 1 point. Have you considered a 95% single loan? Is that not an option for you? You could probably get a 95% loan for the 6.25 interest but then you would pay PMI. Calculate the difference in interest vs. the PMI. Again, if you are sure you are staying in the home for only a short period this makes the calculations different. You want as little up front cost as possible. |
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Venus
|
I definately wouldn't do the interest only! You don't gain any equity that way. I would do the first one. Think of the money that you put toward your principal as an investment that you will get back when you sell. Also, most interest only loans are variable. Then again, if you do my suggestion it might just be a wash because of the higher interest rate of the second one. At least you can be happy that the interest you pay is tax deductible! |
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ted.stryker
|
8.5???
wow... |
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Brian W
 |
The interest only is a good option as it keeps your payments low but at the same time you are not making a dent in the principal and more often than not you end up owing more than you originally borrowed. That is what people refer to as a neg-am. If you are planning on being in the house for 3-4 years than I would suggest the straight fixed plan to be the best overall. As far as the 1 point or no point kinda depends on what you are wanting to do. |
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