Home Equity Loan for 2nd Mortgage

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Submitted by fsbo on May 10, 2008 - 4:31pm

We are paying 7.5% interest on our second mortgage. We just received  a home equity refinance offer from our first mortgage lender - no cost, fixed @4.5%.  It is even better than our 1st mortgage interest (30 yrs @5.75%).

As LTV (Loan to value) keeps the same, it seems making sense to pay off our second mortgage using this home equity loan, while both are tax deductible.

Is it too good to be true? Any ideas would be appreciated...

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see this very informational
Submitted by KingKong on May 10, 2008 - 6:22pm.

see this very informational thread

http://piggington.com/heloc_with_prime_m...

Thanks!
Submitted by fsbo on May 10, 2008 - 9:51pm.

Thanks!

FSBO... I believe that you
Submitted by HLS on May 10, 2008 - 10:05pm.

FSBO...

I believe that you are misunderstanding some part of their offer to you.
You are saying that they are offering you a fixed 2nd at 4.50%? Fixed for how long ?

I could understand if it was a HELOC offer, but those are adjustable, not fixed. There are HELOC's today that have adjusted to below 4%, but I don't know of any new lenders offering them that low for new origination.

If it is true, take out the maximum amount that you can and pay down as much as possible on your 1st.

Something doesn't make sense. Care to elaborate ?

Thanks, HLS. I will double
Submitted by fsbo on May 11, 2008 - 10:12pm.

Thanks, HLS. I will double check with the lender tomorrow and share more details.
The offer letter mentions it's Home Equity Loan, Fixed Terms (up to 25 Years), No cost. We are thinking about using it to pay off our 2nd mortgage which has higher interest rate.
.

FSBO.. Isn't there some
Submitted by HLS on May 11, 2008 - 10:17pm.

FSBO..
Isn't there some fine print at the bottom or on the back of the letter ??

That is normally required, so the terms should be clear.
You shouldn't have to call to find out the details.

The lowest national rate
Submitted by cooperthedog on May 12, 2008 - 12:38am.

The lowest national rate I've seen is at Schwab. It is a HELOC, not a loan, and its "fixed" at Prime minus 1.01% (currently 3.99%). I would assume that your home equity loan is probably a HELOC and/or has some unusual terms. If it is a loan, please let us know what bank is offering such a deal.

Thanks folks! The deal does
Submitted by fsbo on May 12, 2008 - 9:34pm.

Thanks folks! The deal does sound too good to be ture. Its fine print seems more confusing. We contacted the lender today but haven't heard back from them yet.
Here is the web link. I guess it got to be HELOC
http://www.usecu.org/home/loa.loa_hel

FSBO, Not only is it "too
Submitted by HLS on May 12, 2008 - 9:44pm.

FSBO,
Not only is it "too good to be true"
IT ISN'T TRUE....

The fine print isn't confusing to me.. it's just the FINE PRINT

Based upon the current Prime Rate, your rate may be as low as 4.25%. Rate is based upon credit criteria. Your rate may be higher. Although your fully-indexed rate is subject to change monthly, the Prime Rate may change at any time. The maximum APR is 15.00%. The minimum APR is 3.50%

IF YOU QUALIFY, it's prime minus .75% with a floor rate of 3.50% and a max rate of 15.00%

10 YR interest only & draw period, followed by a 15 YR (P&I)repayment period.

Sorry to burst your bubble, it's NOT a fixed 25 YR 2nd at 4.50%, (Unless prime stays below 5.25%!)

It is a standard decent rate for a HELOC. Prime could be 10% in a few years, who knows. Do ya feel lucky ?

I recommend large HELOCS to people who need the loan and could pay them off with liquid assets if they had to, if the rates get silly. Up to $250,000 they are easier to get than over $250K.

It's a gamble to take a large amount for the long term, but could still work out. Hindsight will tell.

Adjustable rates are normally in the house's favor, and the borrower isn't the house.

FSBO, Obviously I don't
Submitted by HLS on May 12, 2008 - 9:53pm.

FSBO,
Obviously I don't know your overall financial picture, but I would consider this loan since you are paying 7.50% now.

Depends on your balance and ability to pay it off if necessary, you will be saving over 3% a year on your current loan. For every year that you save 2% or 3%, it would take an equal number of years that the rate would have to be 9.50%-10.50% for you to be averaging 7.50%

Prime would have to be 8%+ for you to be paying in the 7's on the HELOC. The rate is attractive today, but about 9 months ago prime WAS 8%. It can move fast!

Talk to your tax advisor about the tax deductibility and possible limitations.

THANKS HLS!!!
Submitted by fsbo on May 12, 2008 - 11:30pm.

THANKS HLS!!!