Question by veron: How good is an interest only refinance loan fixed for 7 or ten years at 6.125 interest rate?
We bought a home in FEBRUARY of 2005 the payments are pretty high we have a fixed 30 years mortgage at 6.125 and we are trying to reduce our mortgage payments, we are being offerd a 7 years fixed at 5.37 and a 10 years fixed at 6.125 both which is interest only which is the best refinance plan or should we stay with our present mortgage of 6.125 for 30 years.
Answer by The 7th Son
W/ your conventional loan, you are building equity, be it ever so slowly. Some of each payment goes to owning the home.
Interest only loans are a financial institution’s way of renting you your home. At the end of the 7 or 10 years, you owe just as much on your home as you do now. These sound soooo good, but are only ways to shovel people into homes where banks have no risks and all rewards.
Know better? Leave your own answer in the comments!
You need to consider a variety of factors. First, your current mortgage is a pretty good rate. Interest rates have been the lowest in about 30 years. Even though they have stopped increasing the last month or so, do you really expect them to stay that low? Are you planning on selling the house in the next 7-10 years? If things tight now, what if the rates go up when it’s time for the adjustable to kick in? And if you have a typical interest only loan….it’s adjustable after the initial term. Not that many years ago, I had an 11% mortgage and that was a GOOD rate. That’s unthinkeably high now for a good credit score. Take a look at bankrate.com or Yahoo Finance to review questions that you need to ask about mortgages. Other factors such as the costs are involved….you paid for the first mortgage initial costs already. Do you want to pay additional costs such as points, origination fees AGAIN? I have been in mortgage services industry for last few years and you need to factor in a lot of things before you make your decision.
Depends on what your looking to accomplish in the refinance..
what i mean by that is there are different ways to take advantage of a homes equity, and home ownership itself…
If you want to have your mortgage paid off ASAP, at the least amount of itnerest as possible, then definitely stay with your mortgage.. You are alreasy paying principal, and there is no sense in starting over..
If thats no the MAIN concern, and the main thing is that you need to save money or have a lower payement, then paying off the house quickly may bot be the best bet…
How long do you paln to live in this house? If for the rest of your life, again stay with your current mortgage…
If less then 10 years, then you need to focus on what is the best way to get the lowest possible monthly payment on a monthly basis…
What i suggest is a new loan program on the market called a flexpay…
Basically it is a program that gives you 3 monthly payment options each month…
1. principal and interest payemnt (what you have now)
2. interest only payment (only obligates you to interest)
MINIMUM PAYEMNT (Obligates you to pay less then the interest due each month)
For instance if you have a mortgage with a principal and interest payment of $ 2000, your interest only would be roughly $ 1800, and your minimum payment would only be $ 1000 (half of p&i)
Again this program works if you are simply looking for the added flexibility of knowing when money is tight, you are only obligated to half of the full payment each month..
This program is really strong for people who own their own business.. They dont know how much $ $ they wil lmake each and every month… On good months, they will send the full payment..On bad months, when unexpected expenses arise, you are only obligated to the minimum payment option..
Now be advised if you ONLy send the minimum payment all year long, you will actually owe more money on your mortgage because you arent satisfying all of the interest due each month…
Thi sprogram is primarily to give you flexibility (hence the flexpay)
it isnt to have a low payemt at all times, unless of course if you live in an appreciating area..
For instance, if house prices are rising, then adding interest to your loan at the end of the year (by makin gonly minimum payemnts) wouldn tbe that bad.. As your principal balance increases, you rhouses value goes up as well..
There are many things to consider, and it would be easier for me if i knew more about what you are looking to accomplish…
Any one can answer your question here, but truly the answers given are only going to be an opinion of what they think of these 2 options you ahve listed… Without knowing what you want to do, its impossinble to accurately give you advice…
If you want, i am available mon-sat every week to sassist you with a mortgage refinance.. I work with Providential Bancorp, we are a nationwide mortgage lender…
Feel free to call me at your earliest convenience!
Licensed Mortgage Banker of 13 years