Assuming a Mortgage or Refinancing?

Question by Michael: Assuming a Mortgage or Refinancing?
I bought a house with a friend of mine as co-borrower two years ago. I got married recently and want to take over the house and the mortgage. The house has two mortgages when it was purchased at 100% financing at that time. Rates are good. I called up the lending bank who holds both mortgages and they said I can assume the first mortgage but the second mortgage is not assumable. I have to refinance for the second mortgage.

Another option would be to refinance altogether and combine the two mortgages into one under my name. But since the house was purchased almost two years ago, there has not been that much equity so in order to refinance I have to put down a lot of money. The bank can only finance 95%LTV.

If I go with refinancing with the second mortgage, the bank will need 85%LTV maximum.

Not sure what to do. What do you think?
Thanks Christopher B.! But what is the Power of Attorney for?
The first mortgage is a 30 year fixed, with 6.5% interest. The second mortgage is a 30 year fixed with 7.9% interest.
My buddy got married too and intends to buy a house in a year or so. Hence the need to take him off the mortgage.

Best answer:

Answer by Christopher B
Keep it simple – and cheap. Assume the first mortgage. Ask your friend to allow you to continue to carry the second mortgage. As it is a second, and smaller, it will have less of an impact on your buddies Income to Debt ratio. If he is cool with it, then just get a Limited and Durable power of attorney from your friend, and that way you can continue to service the mortgage, and you can refinance or sell at any time you want in the future, and won’t need his signature.

Power of attorney is to allow you to continue to service the mortgage – i.e. make payments, talk to the financial reps, make changes – as well as being able to sell or refinance. When a house is being sold or refinanced, all parties must agree to the transaction and be present during the transaction – UNLESS, there is a POA in hand. The holder of the POA can sign for and authorize the transaction.

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2 Responses to Assuming a Mortgage or Refinancing?

  1. BLCOHEN529 says:

    Without knowing the terms of your present financing your question cannot produce valid answers.
    Do either or both mortgages have fixed mortgage rates or are they variable?
    In today’s market, you are best off with fixed mortgage rates. A 30 yr. Mortgage pay-off is the gold standard but since most people move within seven years, you might consider a 30 year amortized loan that is due in seven (7) to ten (10) years. These should cost somewhat less.
    Why do anything at all? You paid for your two year old loans just two years ago…You will be duplicating these costs for no reason. Your “partner” might simply be able to file a “quit-claim” deed to you to be removed from liability… Check first with your lender to be certain this does NOT trigger a “Due on Transfer” provision, It should not because it is between existing property partners, but check ANYWAY!
    If your options permit, consider the following.
    Property values are likely to continue falling for one to three years before they steady…It may take three or more years for them to rebound to present levels. In this scenario, you are best putting the least amount of money into your real property mortgages. Invest the difference and after seven years your savings should almost double.
    If you do not eliminate the uncertainty of a variable mortgage rate, you will undoubtedly be soon saddled with SUBSTANTIALLY higher mortgage payments. Will you be able to afford these? Congratulations on getting married but this tends to result in children whose cost will exceed your mortgages and encourage your protecting lowest possible mortgage payments and avoidance of variable mortgage rate payments.
    Factor all of the above with these considerations. Your most efficient answer is the one that creates the greatest degree of certainty of future payments. Peace of mind should be your controlling emotion and practical guide.

  2. Alex R says:

    I would advise you to look into an FHA Rate and Term refinance. They can go to 97% LTV but you will have to see if you qualify with your specific counties loan limits. As of March 2008 FHA has increased their loan limits. This should allow you to refinance both the 1st and 2nd mortgage into one loan at about 6% depending how you time the market. This week we saw a slight increase in rates.

    I would be happy to help you view a comparison report to really look at your overrall goals, especially since you have recently become married (congrats) and now will have to change the plans from a single person to a married couple and all the wonderful joys/curveballs that life will throw at you in the years to come.

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