Bill Consolidation? Be Careful! Refinance Smartly.
With many attractive 100% and 125% 2nd mortgages offering bill consolidation and substantial bill relief, it is easy to become SOLD on a mortgage that may not be the answer to your financial issues.
There are many benefits to these types of loan products, but be careful.
Is your lender experienced enough to see the BIG PICTURE?
Mortgage companies do not offer every product that is available. They specialize in a select group of products and programs and nothing more.
In other words, "A" paper Fannie/Freddie type lenders have no idea how a 125% *B/C* 2nd mortgage is done, and vise versa.
If you're talking to a lender that primarily does 2nd mortgages, of course he will sell you a 2nd mortgage ONLY. Which is good for the lender, but may not be good for you.
OK Now What?
For example, let's say you have a property that is worth $100,000 and you owe $50,000 and you need $50,000 for a bill consolidation. The 2nd mortgage lender will try to sell you a new $50,000 2nd mortgage loan. (Your original mortgage is kept in place while a new 2nd mortgage of $50,000 is created). And depending on which lender you decide to use, you will be negotiating an interest rate of 10%-13% depending on credit scores etc.
Many unaware borrowers jump at this type of offer simply because a $50,000 2nd mortgage amortized over 15 to 25 years will reduce the borrowers monthly minimum payments by 50% or more. This offers tremendous bill relief by paying off and/or down credit cards, auto loans etc...
Are you tired of filling banker's pockets with your hard earned money?
The smart way to structure this loan would be to refinance the 1st mortgage, creating a new loan amount of $80,000, which will allow the borrower to pull out 30,000 @ current market rates of 6-8% (50,000 original +30,0000= $80,000 new 1st mortgage). Then close on a second mortgage right after the first mortgage for the additional $20,000 at 10-13% depending on credit scores etc.
Also, since the lender will profit from two loans, the borrower may be able to negotiate a reduction in closing costs.
Or if credit scores allow, you may be able to do a cash-out refinance up to 95% allowing you a mortgage amount of $100,000 x 95% = $95,000 new loan amount at 6-8% interest rate enabling you to pull out $95,000 - $50,000 = $45,000 (-closing costs) to pay off credit card dept.
Furthermore, we have done these types of transactions where we also reduce the initial interest rate on the first mortgage as well, saving the borrower more money.
Now this may not work with everyone's situation because the numbers my not be the same. But the point I'm trying to make is that if you're working with a do-it-all type mortgage company, they can see the *BIG PICTURE* and structure the loan with your best interests in mind.
Granted, the lender will probably make more money at this type of transaction, but you will also benefit by saving thousands in recouped interest payments.
Everyone Wins!
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