Refinanancing Interest Only |
| Posted by: Christine Jun 3 2004, 10:32 AM |
| I am hoping someone can help give me some feedback on refinancing and getting an interest only loan. My motivation to do this is because of a 2nd home equity loan that is non fixed. I have been looking at refinance options, but because of a low credit score I cannot. My thoughts are that by switching to an interest only, I can use the savings per month to get out of credit card debt, improve my credit score, and then refinance out of the interest only. Is this possible? Will I be able to refinance after 1 – 2 years? What questions should I ask the lender? |
| Posted by: loanuniverse Jun 3 2004, 06:00 PM |
| Christine: I really could not give you feedback on this as I am not a residential lender and really have never been exposed to residential interest only loans. This means that I will probably have the same questions that you have when it comes to meeting with a lender. Having said that these would be my questions: 1- What is my rate and is it fixed? 2- If the rate is not fixed when does it change and what is the base rate? 3- Does this loan turn into an amortizing loan in the future? If so when? 4- What are my closing costs associated with this loan? 5- Will this loan mean that I will have to incur other costs? (ie: PMI) Once you have those questions is a matter of doing the math and comparing with your current situation. However, those are not all the questions that need to be asked. I think that the most important question is a question to yourself and that is: ”If I start saving $100 or wathever I am going to be saving per month in payments will I be able to control myself and bring down the credit card debt or will I just spend it away?” In my humble opinion, if you are not going to get a break on the interest rate {and it seems that you may not}, and you are going to pay closing costs {which is very possible}, this might not be a good idea unless you can really make a dent on your debt. Finance is all about “present value of money”, and paying a couple of thousand dollars worth of closing fees would put you in a hole from day one. Then again, I am not a residential lender. Good luck |
