Ok, so I'm going to stay in my home after our divorce is final and I want to consolidate my mortgage, home equity and other debts into a single loan to reduce payments and interest rates. The amount I'd want is less than the COUNTY'S appraised value of the home, nevermind what the value would be if I decided to sell. Anyway, anyone have any experience with how this works, what the rules are, etc. Thanks!
Do you mean will the loan be 20% less than the value of the home or is my current mortgage total more than 20% less than the current value of the home? In the first case, the loan value would be between 80 and 90 percent of the current value of the home. In the second case, both my current mortgage and home equity loan total about 40 percent of the current value of the home.
Well then, the rule, as best I know it, on home equity loans, you can up to 80% of the value of your home. So say, if your home is worth $200K, and your existing mortgage/home equity loan, is $120,000 ...then you can borrow up to $160,000, or $40,000 more than what you current owe. Based on market value of course, which would be determined by an appraiser for the mortgage company. *cough* My wife does home equity loans if you are interested. *cough*
Codell, I think he already has a home equity loan and is talking about refinancing his entire house and paying all of them off with one bill? Is that correct Jeff? If so, you can refinance the whole house in an 80-10-10 format to avoid the PMI insurance and pay off the other debts. DD
It would still be a home equity loan since he already has one home equity loan. Once you get a home equity loan, then every "refinance" after that is considered a home equity loan. You can't go back to a conventional loan like that. So stuff like PMI and escrow won't and can't be an issue.
Codell, What? He can not refinance his house, and draw the equity he owns out of it,pay off debt, with a completely new loan? DD
One caveat I ran into this past week. Once you take cash out an equity loan your home loan is forever classified as a home equity loan. And Texas law only allows you to have one home equity loan on your house. That just means if you ever want to access your equity again you have to refinance the old loan plus any cash your taking out. Since rates are low right now and probably won't be this low in the future you would probably have to refinance your existing loan at a higher rate to access future equity. This doesn't seem like a big deal especially since reducing your outstanding debt to today's mortgage rate is an excellent idea but just a detail you should be aware of. In my case I wanted a small equity loan to improve the family co-owned beachouse so I could keep a seperate set of accounting records since 'the family' would be paying that loan off. But since I had taken some cash out of a 1998 re-fi the state law won't let me take out a new equity loan. Rats.
codell's wife is helping. Yeah, I found out that once you take a single home equity loan out, you ALWAYS have to take out a home equity loan on the same home meaning it is subject to the laws on the books including the 80 percent rule. Fortunately, our mortgage and home equity combined represent approximately 1/3 of the total value of the home, which is great. I want to just get one big fixed-rate loan to cover every damn debt I have, give me a manageable payment and leave me with enough left over to do some needed home improvements. Going through this is tricky, but I'm in a good position financially and the home is valuable, thankfully.
Heres a little economic riddle I haven't exactly figured out yet. When I refinanced the first time in 1998 I took some cash out to pay for some things because after all the the years of 9% mortgage money, 6.75% seemed cheap and I was easlily making more than that on my investments. I've since refinanced again down to 5.5% but my investment income has come down to about that level. The riddle is that I financed the purchase of some things (for one my Mercedes ML) over 15 years at a low rate and easy payments but I think if I sit down and calulate it out I will end up actually paying more total interest because of the longer term. The calculaton gets more complicated when you consider that the mortgage interest is tax deductable and a car loan isn't and over the years I hover right around a point where the mortgage deduction puts me in a lower bracket, so I may never know if it was the correct move or not. Frankly if I had been able to forsee the drop in returns on my investment from 1998 to 2002 I would have just paid cash for the SUV. My point is: when you choose to refinance your high interest debt to an equity loan you need to consider the total cost of using the money. The rate is lower, yes, but the term is probably longer. I don't know the answer. Yes, high rate debt is the #1 killer for most young people's economic plan. But it could be a better idea to finagle it some other way, like shuffleing the debt between 0% interest credit card offers and paying as much as you can on them rather than just paying out the huge total interest cost over a longer period. What you are really doing is financing purchases like, stereos , cars or clothes over 15 or 30 years, paying for them well after the end of their useful life. That's a lot different than financing a house that is still useful and possibly even appreciating.
