Refinancing ( Second mortgage vs Home equity loan )
Question: We bought a house couple of months back with the first mortgage at 80%, second mortgage at 15% and downpayment of 5%. We have recently talked to a loan agent who is offering to do a refinancing of both the loans. She is saying that the second mortgage will be refinanced as a home equity loan. The interest rates being offered for the two loans are really good and it is a no-fee, no-point, no prepayment penaly refinancing. We may have to pay for the appraisal only.
This looks like a good offer. Can there be any catch in it? What is the impact of the second loan being a home equity loan instead of a second mortgage. Does it impact the interest tax-deductability compared to where we are with our current loans?
Answer: Sounds like a reasonable plan. Any “catch” would be in the interest rate, since you seem to have asked the other common questions.
Ask about loan servicing and escrow terms — to whom will you make your monthly payments, and who will be responsible for maintaining the records, escrow account, etc? How will your escrow payments be determined, so you aren’t forced to keep excess money in a non-interest-bearing escrow account? If a local company services the loan, that’s a bonus. If the loan servicing cannot be sold without your permission (which does not affect the broker’s ability to resell the loan itself, a common practice), that’s a bonus.
“Second mortgage” and “home equity loan” are 2 names for the same thing. As long as the 2 loans are for less than the value of your house, they are tax deductible (check the IRS instructions/pubs for details).
Related Posts
Filed under: Home Equity Loan
Leave a Comment
XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
TrackBack URL | RSS feed for comments on this post.