Question about refinancing

I have a question about refinancing. I think I understand the basics but not sure. Here is a little background first… I recently closed on a property were my current mortgage payment on is a combined $1242.09 a month. By combined I mean I took out a 80/20 then a second loan to cover the other 20%. Both the loans are interest only loans and I can’t refinance for 36 month’s with out being charged a prepayment penalty. I don’t recall off hand what the penalty is. Also because I basically put no money down, I am negative cash flow with this property of about $100 a month. I got a letter from a refinance company (like everyone else!) showing how much my monthly payment would be if I refinanced my loan at different dollar amounts. $100K loan would cost me $322.00 a month, $300K for $900.00 a month and so on. Now my question is in two parts…

  1. Is it really has clear cut as all these fax’s, letters and phone calls I get from these companies? Will that new monthly payment be in the ballpark of m y new loan depending on the interest rate and length of loan? Or is it totally off?

  2. Since I am negative cash flowing annually of around $1200, would it be wise to refinance and take the prepayment penalty depending on how much I will be penalized. That way I will be positive cash flowing and potentially only out slightly more money then the $1200 I know I will be?

I hope I stated this clearly enough to get some good feedback with regards to this topic. Thanks for all the help!

To roughly estimate your pre-payment penalty calculate 6-months worth of interest.

so many questions… :o

To answer question #1;

Those great rates that they advertise are just that, an advertisement. On most ads, if you watch the disclaimer it will quickly display “based on credit score of 700+ and LTV of <75%” These “teasers” are for low LTV Rate and Term refinances which are low risk in the eyes of the Lender.

To answer question #2;

It appears that you have not been in this mortgage for very long…less than 2 years? I am sure that your property value has not increased tremendously in this same period. This would mean that you would need to probably come out of pocket again if you refinance.

Best Wishes,

Mike Siehien