When to refinance and what to do with 2nd mortgage?

Question by Mak: When to refinance and what to do with 2nd mortgage?
Bought home in October of 2006.Bought it with no money down. Did 80/20 Loan: 1st Loan 7.125% 2nd 10.5%. Interest only 5/ARM. Price was $ 584000 In the Los Angeles area.
Bought Home below market value, houses around my area are selling for $ 650K and up.How soon can I refinance to a fixed rate and what can I do about the 2nd mortgage in order to avoid getting a Jumbo Loan rate and having to pay PMI?

Best answer:

Answer by one_observation
not a lawyer or a mortgage broker, but believe that to get a new first, you will have to pay off (or refinance) both your existing first and second (so that the new first can be “first” and not behind the existing “second”)

not a problem, if there is enough appreciation to do 80% in the first based on current valuation … otherwise may be a problem juggling paying off and simultaneously refinancing both … unless you can get another hybrid pair.

also … with respect to timing … be sure you are aware of any prepayment penalties in your existing loans … and consider the impact of any points on either the old or the new loans … fees and points can eat up the economics pretty quickly

What do you think? Answer below!

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2 Responses to When to refinance and what to do with 2nd mortgage?

  1. Easygreasy says:

    Even if your home is worth 650k, you still won’t be able to get rid of the second loan without PMI since your loan-to-value is still sitting at 90%.

    Of course you can refinance your first loan, to get a fixed rate. But how long are you planning to stay in the home? You’ve only bought the house 2 months ago. If you’re not sure, I wouldn’t refinance yet. You’ll just end up paying brokers fee twice. And even if its a “zero point, zero cost” loan, that cost is still gettiing rolled into the back and it WILL cost you money.

    Your loan is a fixed rate for 5 years, I would suggest try to wait until (a) you can pay off some of that 2nd loan and/or (b) your property price increase, before you refinance.

  2. W. E says:

    Please, before you go any farther, look at your Mortgage Note, and any and all riders associated with your property. You got (I am sure) a big package at the closing table in October. Look them over carefully for a pre-payment pentality. You may have one and if so, what is the percent. If it is 2 percent based over a 2 yr period or a 3 yr (which is normal) broken down over a 3 yr like a 3-2-1 percent.

    2nd you would have closing costs associated with your loan again. If you do refi, than contact the title company you recently used and see if you can use them again, since you already have had title insurance with them, and they would still have all your information on file. That may save you $ $ $ $ .

    3rd, since you are in a interest only now – nothing has been paid on your mtg. And you have only paid 1 payment on the interest (if it was due in December). A new lender will want to see the mortgage history – – and you may have a seasoning issue on having to use the orginal appraised value vs. the new appraised value. So lenders will require you to be in the property 6 months, and others 12 months….to go off the NEW appraised value. If I were you, I would wait 1 yr (12 months) of payment history to be reported (Or at least 6 months) to go off a NEW appriased value…..Values may go up even more in 4 months time, in the Los Angeles area.

    Based on the informaiton you mentioned, you could in 4 months (best if it is 6 months) have a appraisal done (after you get qualified) for a 617,500 loan (That is 95 percent of 650,000). That would pay off your first and 2nd, if you do not have a pp (Pre-Payment). You could even call your Lender and see if you have a PP. But check your paperwork (ok).

    If your credit is good, and it sounds like it is, than a 6.125 on a JUmbo is not unheard of with a payment of $ 2,534

    Go to: http://www.interest.com or http://www.rates.interest.com

    National Mortgage Rates
    12/18/2006 8:48:31 PM

    APR Rate

    30 Yr Fixed Jumbo 6.11%
    15 Yr Fixed Jumbo 5.90%

    Good Luck – the Loan Process can be fun – at least I love being a Broker, getting to help my clients is rewarding to me. Find a Broker who cares and will go over the full loan process with you and be in contact with you daily. The one on one customer service is important, to you, the client, to let you know the whole loan process

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