Please help me decide!!!!

[Anonymous]

I have a mortgage loan with Countrywide at 5.75% fixed. I applied for a home equity loan with Penfed Credit Union at 4.99% and got approved. Penfed called and asked if I wanted to pay off Countrywide and refinance the whole thing through them at 4.99% and only make one payment. Should I or Shouldn't do it? I know it sounds good but I don't want to make a stupid mistake. Can someone help me make a smart decision here?

[BoysMumx2]

Is the 4.99% a fixed rate?  What are you looking at as far as fees?  If you could get a Good Faith Estimate from them, you'd be able to see everything involved and how much it would cost you.  I'm sure someone on here (ie, Shane or one of the others) would be able to give you better advice, but it sounds potentially good to me. 

Just my 2 cents. 

[Anonymous]

x5 - The answer is "it depends".

You need to consider the overall cost of the refinance (closing costs, fees, points, etc) combined with how long you plan to stay in the home.

As an example, if you currently pay $2,000 per month and will save $150 per month by refinancing, then you will save $1,800 per year.

If your costs to refinance (whether paid up front or included in the new loan) are $6,000, then you will need to stay in the house for 3 yrs 4 mos (40 mos x $150 = $6,000) in order to break even on the re-fi.

Other factors like current equity position, market trends in your area, your current and forecasted income, and others will likely play into your individual decision.

You're getting an outstanding rate from Penfed, hope it all goes well.

[Lel]

x5man, the Penfed interest rate you mentioned is in line with the going rate with home equity lines of credit (HELOCs).  These have variable interest rates that are typically tied to the prime rate (which, in turn, moves in tandem with the discount rate, which the Fed has been cutting).

If the 4.99% loan is in fact a fixed rate loan (a traditional home equity loan), then it would make sense to grab it and get rid of the higher interest rate loan.  But if it is a HELOC (which I suspect), then you'd be saving money in the short term, but if the Fed start to tighten and the prime rate goes up, you could end up with a higher interest rate.

Some HELOCs do have an option to convert to a fixed rate.  You'd have to check with your lender to see whether that is possible and what it entails.

Another thing is that HELOCs often have different payment schedules that mortgages or home equity loans.  A Bank of America HELOC, for example, has a 10 year draw period (the time that you are able to take equity out of your home) and then a 15 year payback period.

Of course, if this 4.99% interest rate is truly fixed, then everything above is moot.  If so, tell me how to join your CU, because I want that interest rate too!

[Anonymous]

At first I applied for a fixed home equity loan (not HELOC). They called to tell me that I was approved and go over the application. During that process, they asked me if I wanted to consolidate. I ask them the following two questions: a) will the 4.99% rate change?  b) what are the fees associated with this deal? they told me that the rate will not change and there is no fee unless I decide to pay the loan off before 2 years. I thought it was a good deal. Can anybody think of any reason why I should not go with this besides the ones listed already? I plan to leave in this house for more than 2 years.

[Lel]

Well, it seems like a really good deal. Just get it in writing. It sounds like it comes with a prepayment penalty (if you pay it off before 2 years).

The only other thing I would mention is that when I got my home equity loan a couple years back, it had to be paid off in 15 years. I don't know if the same applies to you. My loan is actually amortized over 30 years, but the balance comes due in 15 (a so-called "30 due in 15" loan). You should probably check to see what the payment term is.

[ShanetheMortgageMan]

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Lel wrote:
Well, it seems like a really good deal. Just get it in writing. It sounds like it comes with a prepayment penalty (if you pay it off before 2 years).

The only other thing I would mention is that when I got my home equity loan a couple years back, it had to be paid off in 15 years. I don't know if the same applies to you. My loan is actually amortized over 30 years, but the balance comes due in 15 (a so-called "30 due in 15" loan). You should probably check to see what the payment term is.

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Yup, definitely check with what the term is.  Many 2nd mortgages are the "30 due in 15", so you have 30-year payments and then a balloon payment at the end of the 15th year.  You can ask for an amortization schedule which will lay out all minimum required payments over the term of the loan.

[Anonymous]

Thanks guys.

I think you have told me enough to make smart decision.