Question by BG: Cons to refinancing mortgage for more than I currently owe?
I’m currently 6.5 yrs into my mortgage. Thinking of refinancing for 1.5 points less than current, but adding about 30% to what I currently owe to pay off car, credit cars, and 2nd mortgage. I haven’t had the appraisal yet, but the mortgage company says my house should be valued a bit higher than the new mortgage. I’m trying to figure out what the drawbacks are. The mortgage company says it’ll save me about $ 500 a month and I can get that other stuff paid off, but I don’t have the brain to know if it’s a good deal.
Answer by v b
If you successfully pay off the loans:
You pay a lower rate on the car and credit cards. This saves you money (see below).
Within limits, this might still qualify as a mortgage debt on your tax return without being added back for AMT.
You empty your credit cards and use them again.
You focus on the $ 500 a month “savings” and don’t pay as much on the part of the loan that used to be the car payment and credit cards and stretch the payments out over the life of your mortgage.
Give your answer to this question below!
If you are going to pay off your car, credit cards and other items it is worth it for several reasons. Less debt, lower monthly payments, less interest than your car and credit cards were giving you and now all those things are now a tax write off because you get to write off mortgage interest. It will actually save you a lot more money than you think. Eventhough you are tapping into your equity a little now it’s still worth it. If you are comfortable with what you are paying out just throw that extra 500 a month you are saving towards the principle every month.
If you bought 6 years ago, it’s possible that you have some equity in the property. But, I doubt you would have enough to pay off the current first, your car, credit cards, and the second. Today’s real estate values are approximately what they were in 2001. And, you would have realized a price increase from 2001 to 2003 (when you took out the first mortgage some 6.5 years ago). So, it’s more likely that your home is worth less or about the same as what you owe on it (you have been making payments for 6.5 years, but most of that was interest, not principal).
Before proceeding, you need to find out what the home is worth. You will then be able to borrow only about 80% of that value, which must be enough to at least pay off the current first mortgage for you to be able to refinance (remember, your second mortgage’s principal counts against the equity you have in the house to borrow on). If they’ll let you borrow more than what it takes to pay of the current first, you can take cash out and pay off other obligations. But, I seriously doubt that there’s enough equity to pay off everything you plan on paying off by refinancing.
As long as you know you are getting fair pricing, this sounds like a great program (debt consolidation, lower payments, lower rate, big savings, 2nd mortgage paid off, car paid off).
Mortgage interest is the best kind because it’s the only kind of interest that is tax-deductible (always check with your CPA).
Not to mention you are saving 500/mo. That’s $ 6000 a year… 30,000 in 5 years… you get the picture.
I’d just be sure you aren’t overpaying. If this is the first lender you’ve talked to, they are probably making money on the back (giving you a higher interest rate) and on the front (origination fees).
“Nothing makes a lender sharpen their pencil more than competition”… shop around.