Question by Robert: Should I refinance with less than 5 yrs left on my current mortgage?
My mothers owes about $ 20,000 on the house making monthly payments of nearly $ 1,000.00 (not sure of the interest rate). The home is worth $ 150k. She won’t be able to keep up with the payments, should she refinance? If so, how long should she extend the payments?
Answer by Oldwhiteguy2earth
You’d have to know what she can afford to determine the term of the loan. Go to Amortization Tables on the internet to decide what length of loan to take. Also, you may have a heck of a time finding anyone to make a loan on that small amount of principle – it’s not worth the paperwork. Perhaps she should look at some kind of reverse mortgage.
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Something tells me that what is really killing her is home insurance and property taxes. She can get insurance quotes from other companies, and increase her deductible to save some serious money. And, she can google how to reduce your property taxes. Please help her do this.
No bank will refinance for just $ 20,000.
Most banks require amounts to be 50,000 or more.
And, don’t forget closing costs – they are not cheap.
How old is she? She could sell the home and buy herself a nice little retirement condo with the equity in the home.
That way she doesn’t have to worry about grass cutting, maintenance, etc.
If Mom can’t afford the payments, definitely refinance. With $ 20k to go, she could refinance for the same 5 years, and come out with a reduced payment roughly equal to half of her original payment. You can crunch the numbers with a mortgage calculator to help her determine a payment she is comfortable repaying. (see link)
Now it may be difficult finding a lender who will grant a refinance on such a small amount of money so it might be in her best interest to borrow more, and use the extra cash to buy a new car or fulfill another desire. Refinancing the house to cash out money for a car purchase is a great idea since you can’t deduct interest on a car loan, but can on a mortgage.
If Mom can’t afford the payment and no one is going to make her payments for her, refinancing or selling are the only viable options. With a $ 20,000 balance, a traditional conventional mortgage makes no sense since the fees would be prohibitive. Most banks can refinance her into a home equity loan with relatively modest fees ($ 150 -500), especially since they probably won’t need a professional appraisal which such a low loan to value amount. Twenty year terms or longer are available, and a $ 20K P&I payment @ 7% for 240 months is only $ 156/mo. I don’t know how much of the $ 1000 payment she has now goes to tax and insurance so you can make a judgement call on the length of term she needs based on the rates that are available and the amount of savings she needs. I would lean toward longer terms since you can always make larger payments than the contract requires.