Before I got into building my knowledge of REI, my mother took out a home equity loan. she has waited until now to start thinking about refinancing. she did not quite take into account, the impact of the increasing interest rate. i finally got her to speak to the bank.
so, she’s been paying interest only for 2002. her “draw period” ends in 07. she has withdrawn the full amount (75,000).
it will cost her about 3500 in closing costs. her payment will be 800ish [6.75% - 30 year term] (taxes are 4600 a year).
she does not want to have this high a payment.
what are her options? she has made MANY updates to her home. i would say the value of home currently would be around 475,000.
she is 58 and is NOT a RE Investor. i have been talking to her about REI and she is going to invest in my business, but RIGHT NOW, she can’t quite understand her options.
and me being a novice, i really don’t know HER best options.
first of all, this is not a sob story. i’m looking for information.
second, she owes nothing else other than the 75k home equity loan.
she is 58 and is coming into some money from the sale of another home (selling to my sister). she wants to pay off a large portion of this loan and then leave like a 35k balance to pay on like a $600 or so mortgage. make double payments and pay it off much sooner.
but i hate the fact that she’s going to take 40k of today’s dollar and use it to pay down another debt, when she could invest this money in more RE - then use the monthly income from rentals, to pay off her mortgage.
she has a job, has money coming in from my father’s SS (he is deceased), so she would not need the income from any RE she invested in now.
It sounds like she may not want or need to be involved in real estate investing. REI can be risky and complicated. I would hate to push it on a family member and then have it not work out.
Guess I’m just a little confused here. This should NOT be a big deal at all.
If the property is worth anywhere CLOSE to $475K and she only owes $75K, then practically ANY bank in the U.S. will loan her the money to refinance this loan.
without knowing her credit scores and what lender(s) she is dealing with, I’m assuming that the $800 or so a month includes taxes/insurance in the payment. If so, then back them back out to determine her actual loan payment amount, as taxes and insurance are going to happen whether or not she includes them with her payment.
As to terms. a 30 year loan of $75K @ 9% interest is only about $610/month (plus taxes/insurance). If her credit is decent and with the LTV of this property, she should be getting around 7%, which would bring the payment down to around $500 or so.
BTW, $3500 in closing costs for a $75k refinance is HIGH, HIGH, HIGH!!! My suggestion, find another lender FAST. If she isn’t already, she needs to be dealing with a good old-fashioned brick and stick local bank.
Contrary to current beliefs, but paying down debt is still a good idea. And I’m not sure that convincing your mother at this stage of life to invest in RE is a good thing. It doesn’t sound like that she is comfortable with the small debt that she currently has. Adding more debt isn’t going to help that feeling.
i’ll mention the high refi expenses. she is going to do what she wants anyway, which is to pay down the loan a bit, then just double up on payments two or three times a year.
we’ll look for a good deal, but yes, the bank she’s with now, quoted high refi expenses…but she spoke to someone over the phone, i told her that she is not to do that…
you might be able to extend the draw period on the heloc. otherwise, you could look into a no-closing cost refinance through a local credit union or bank.
At Wamu, they offer an extension/addition of credit line. Lady helping me told me she could increase mom’s line to 100k, of which, my mother uses none.
Mom could pay down 75, then refinance line as many times as she likes, to continue lowering interest rate.
A heloc does not need to be refinanced. It is an equity line of credit. It is just (in lay terms) a big ole credit card that is secured by the equity in the subject real estate. You can borrower against it and pay it down many times without having to refinance, again, just like your credit card balance can go up and down through payments or charges.
She would not have to refinance this line at all. Most states offer 10 years of interest only payments. Without knowing the terms of her current deal I would not be able to say what the best course of action is, but at the very least she should be able to refi this HELOC into another HELOC and then have 10 years of interest only payments.
If your mother is that concerned with paying down the debt then she should not be getting a HELOC in the first place. HELOC payments derive their interest rates from the prime rate (plus or minus points based on the borrower). A closed end loan derives its payments from the 10 year treasury note. The 10 year note is not tied directly to the FED and the interest rate tightening, however the prime rate is tied DIRECTLY to this. Also, the 10 year note is considerably less than prime at this point (and most of the time for that matter).
