HappyGrace Posted July 7, 2012 Share Posted July 7, 2012 (edited) We got a flyer from our credit union about a home equity loan for $100,000 at 3-something percent. We still owe 20 yrs on our mortgage the way it is (and I think we owe like $70,000), but we figured out if we did this home equity loan to pay it off, we'd still pay it off in 20 yrs, but could lower our mortgage payment by at least $300 per month and maybe more (the $300 less amount in the flyer was for a $100,000 loan). ETA: I put this further down the thread too, but this is the link to the deal we're considering, and they actually are calling it a "Re-fi with a twist" https://www.capcomfcu.org/borrow/601-refi-with-a-twist.html) Any reasons not to do this? We are on one income, pretty much paycheck to paycheck, with no savings, no college fund for the kids, very little retirement, two kids in braces, some credit card debt, etc. We're thinking if we did the home equity loan, the extra $300 per month we save could go to pay off the credit card debt (about $8,000), which would give us more breathing room in our budget (instead of trying to pay off debt out of our already tight budget), plus the debt would get paid off quicker. Then once the debt is paid off, we'd have that $300 extra per month to start putting into savings, etc. Are we totally off track and missing something here? It just seems too good to be true, I guess. Is this not the way a home equity loan is meant to be used? Because why wouldn't more people do this, is what has me thinking that we're missing something. ETA: and actually, I just happened to think-it would be smarter to get the home equity loan for MORE than the amount of the mortgage, to get enough to also pay off the credit debt, so that we're only paying 3% on the credit debt rather than 11% or whatever that we're paying on it now. We are just not financially savvy enough to figure this all out :( Edited July 7, 2012 by HappyGrace Quote Link to comment Share on other sites More sharing options...
Carol in Cal. Posted July 7, 2012 Share Posted July 7, 2012 How long is that interest rate guaranteed? Also, do you have to pay a lot of fees and points, etc., to get the loan? Quote Link to comment Share on other sites More sharing options...
laundrycrisis Posted July 7, 2012 Share Posted July 7, 2012 Before doing a home-equity loan, I would shop around for a refinance - you may be able to refinance the remaining mortgage balance for an even lower rate and lower fees. Quote Link to comment Share on other sites More sharing options...
Jennifer in MI Posted July 7, 2012 Share Posted July 7, 2012 We had a neighbor do this. The only problem is that the loan rate wasn't fixed. That's scary to me! Quote Link to comment Share on other sites More sharing options...
HappyGrace Posted July 7, 2012 Author Share Posted July 7, 2012 AGH-I didn't realize it's not a FIXED rate maybe-I will have to check. That would NOT be good. Quote Link to comment Share on other sites More sharing options...
wapiti Posted July 7, 2012 Share Posted July 7, 2012 (edited) You'd have to qualify first, which might be an issue if you wouldn't have extra income to pay off the home equity loan (the lender might be looking for that, as they have no way of knowing that you plan to use the home equity loan to pay off the original mortgage). Insteaad, you might shop around for refinancing your mortgage (a "re-fi"). I would also look out for fees and closing costs associated with a home equity loan or a re-fi. Eta, you also have to consider what the current market value of your house is. Edited July 7, 2012 by wapiti Quote Link to comment Share on other sites More sharing options...
HappyGrace Posted July 7, 2012 Author Share Posted July 7, 2012 Eta, you also have to consider what the current market value of your house is. Can you explain this please? I think the market value is around $210,000 or so. Is that good or bad for doing the home equity? And oh, I see too about qualifying, they might think we're using the money for a new boat or whatever-they don't know it's for the mortgage so they'd see it as extra debt, I see what you mean. We did re-fi several yrs ago; I think it's around 4 something percent, so I don't think it would be worth the refinance closing costs etc? I had dh look at the flyer, he said it is fixed and there were no fees. I don't know what points are. I'm just SO afraid to do this and miss something that comes back to bite us later. Quote Link to comment Share on other sites More sharing options...
HappyGrace Posted July 7, 2012 Author Share Posted July 7, 2012 Actually, I'm looking at the flyer, and it IS a re-finance; they are calling it "Re-fi with a twist". Here is the link: https://www.capcomfcu.org/borrow/601-refi-with-a-twist.html Quote Link to comment Share on other sites More sharing options...
Bonkers247 Posted July 7, 2012 Share Posted July 7, 2012 One thing to check is how long you can have the loan. We were planning on doing this and found out the loan would go for ten years and no longer. Make sure it will actually be for twenty years. Quote Link to comment Share on other sites More sharing options...
DawnM Posted July 7, 2012 Share Posted July 7, 2012 Yup! It is right there in your link on the first page: Pay off your mortgage with a LOW FIXED RATE Home Equity Loan: 5-year term at 2.99%APR* 10-year term at 3.25%APR* 15-year term at 3.99%APR* 20-year term at 4.99%APR* Your 20 year loan is about 5%. Dawn One thing to check is how long you can have the loan. We were planning on doing this and found out the loan would go for ten years and no longer. Make sure it will actually be for twenty years. Quote Link to comment Share on other sites More sharing options...
DarlaS Posted July 7, 2012 Share Posted July 7, 2012 Actually, I'm looking at the flyer, and it IS a re-finance; they are calling it "Re-fi with a twist". Here is the link: https://www.capcomfcu.org/borrow/601-refi-with-a-twist.html It does say fixed rate, but they are still calling it an equity loan. That implies to me that they would base the loan amount on your equity. Very few people have much equity in their homes right now. I'd make some calls. Couldn't hurt to investigate. Quote Link to comment Share on other sites More sharing options...
HappyGrace Posted July 7, 2012 Author Share Posted July 7, 2012 Oh, I see, so we would only be able to get the loan for the amount we have PAID on the house already? Is that the equity, or is the equity how much the market value is minus the amount owed? Quote Link to comment Share on other sites More sharing options...
HappyGrace Posted July 7, 2012 Author Share Posted July 7, 2012 If it is the second one, I guess we'd have about $130,000 in equity--approx $200,000 (guessing lower) market value on house minus the $70,000 we owe, is that right that that's what equity is? Quote Link to comment Share on other sites More sharing options...
DarlaS Posted July 7, 2012 Share Posted July 7, 2012 Oh, I see, so we would only be able to get the loan for the amount we have PAID on the house already? Is that the equity, or is the equity how much the market value is minus the amount owed? Nevermind-you got it! Quote Link to comment Share on other sites More sharing options...
DarlaS Posted July 7, 2012 Share Posted July 7, 2012 If it is the second one, I guess we'd have about $130,000 in equity--approx $200,000 (guessing lower) market value on house minus the $70,000 we owe, is that right that that's what equity is? Yeah, that sounds about right. I think I'd be making some phone calls in that situation! Quote Link to comment Share on other sites More sharing options...
HappyGrace Posted July 7, 2012 Author Share Posted July 7, 2012 OK, thanks. Actually, our appraised value, for taxes, is around $240,000. We'd only take the minimal amount we'd need to pay the mortgage and debt, although it did just occur to me we could maybe get the new roof we desperately need, if there's enough equity. It would be so great to consolidate everything AND have a lower payment every month! We could start some savings then. Quote Link to comment Share on other sites More sharing options...
sgo95 Posted July 7, 2012 Share Posted July 7, 2012 If you have 20 years and $70,000 left on your mortgage at ~4%, your monthly payment would be around ~$425 (rough estimate) + money set aside in escrow for property taxes and home insurance each year. I must not be understanding the details of your situation because that's much lower than any payment listed on the flyer's website. Also note that the lowest rate is only for the 5-year loan. The $659 for the 20 year loan doesn't include the amount you need to set aside for property taxes and home insurance every month. Quote Link to comment Share on other sites More sharing options...
NicksMama-Zack's Mama Too Posted July 7, 2012 Share Posted July 7, 2012 We are doing a cash-out refinance at 3.8% (E-Trade). Our payment is going to be about $200/month lower and we are going to have $35K cash in the bank for future uses (college, home improvement). Call your current mortgage holder and see what they can do for you. I think the 4.99% is pretty high. K Quote Link to comment Share on other sites More sharing options...
wapiti Posted July 7, 2012 Share Posted July 7, 2012 OK, thanks. Actually, our appraised value, for taxes, is around $240,000. We'd only take the minimal amount we'd need to pay the mortgage and debt, although it did just occur to me we could maybe get the new roof we desperately need, if there's enough equity. It would be so great to consolidate everything AND have a lower payment every month! We could start some savings then. Appraisers for lenders are MUCH MUCH more conservative these days in determining market value than they used to be. Your appraisal for tax purposes is completely irrelevant. Look on-line at what similar houses have recently sold for on your street and in your neighborhood - that's a much more accurate indication. If there have been many foreclosures in your area, that may bring down the market value considerably. Also, for a re-fi, most lenders will be looking for 80% loan to value. If you meet that, you're going to have to worry about whether your income is high enough. It can't hurt to explore, just have eyes wide open, and don't hold your breath. Points are percentage points of the loan, I believe. Quote Link to comment Share on other sites More sharing options...
HappyGrace Posted July 7, 2012 Author Share Posted July 7, 2012 If you have 20 years and $70,000 left on your mortgage at ~4%, your monthly payment would be around ~$425 (rough estimate) + money set aside in escrow for property taxes and home insurance each year. I must not be understanding the details of your situation because that's much lower than any payment listed on the flyer's website. Maybe the rest in our mortgage is for escrow and home insurance? Not sure about that. I do know our escrow goes up quite a bit each year due to higher taxes, and our tax appraisal going up every couple yrs. :glare: I guess we should shop around and look into a regular refinance too. Someone PMed me that there are not the federal protection laws in place on a home equity or 2nd mortgage, which is scary too. wapiti-I think that based on what I've seen, $200,000 (guessing low) would be the market value for our house. Quote Link to comment Share on other sites More sharing options...
Sharon H in IL Posted July 7, 2012 Share Posted July 7, 2012 This is exactly what we did, and we're very happy with our decision. We had a pre-existing Line of Credit (which is a home equity loan -- also known as a 2nd mortgage -- that is available for quick access at the homeowner's discretion. So you don't take it all out at once unless you choose to, rather the money is a reserve that you could draw on quickly in an emergency. DH called our banker and checked to make sure that our lender -- who is also our main bank -- would allow this transaction, and they were fine with it. No fees were required AT ALL. We wrote ourselves a check from the line of credit for $XX,XXX which was the outstanding balance of the mortgage, then deposited it in our checking account. Then transferred that amount electronically to pay off the mortgage. They sent us a refund check because our automatic payment had gone through in the meantime and we had slightly overpaid. With no refinancing charges or points, we shortened our mortgage life to just 5 years instead of 12, because the interest rate went from 5% to 2%. It won't matter that the rate is not fixed, because our payoff date is so close. We continue to pay the same amount each month. We're just paying off almost all principal now. Woohoo! Quote Link to comment Share on other sites More sharing options...
QueenCat Posted July 7, 2012 Share Posted July 7, 2012 Maybe the rest in our mortgage is for escrow and home insurance? Not sure about that. I do know our escrow goes up quite a bit each year due to higher taxes, and our tax appraisal going up every couple yrs. :glare: Escrow normally covers taxes and home insurance. Your monthly statements should delineate what portion goes for escrow and what portion goes for the loan. Quote Link to comment Share on other sites More sharing options...
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