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Disadvantages of 1st mortgages
Higher Interest rate
Chances are likely that your new rate will be much higher than what it currently is, with a very good chance it will be a double digit number. For Example, a Current first mortgage of $300,000 @ 6.25% = a payment of $1562. A new mortgage of $350,000 @ 10.25% is $2,989.58. That is an increase in payment per month of $1,427 and if you were to keep that loan for 2 years, it would be over $34, 000 more. Would you want to pay an increase like that? Thatís not the worst part; let's go into the pre-pay penalty.
With a new first mortgage, it usually comes standard with a 2 or 3 year pre-payment penalty. That means you have to keep that loan, regardless of increase in mortgage payments for 24 to 36 months or else you have to pay very high, very outrageous fees. If you currently have a pre-payment penalty on the loan, you are looking at 6 months interest payments on 80% of the current balance. That is the general formula. The pre-pay penalty is not part of the closing costs on a new loan, so that fee as well as the amount to reinstate and normal charges will need to be paid. The pre-pay penalty usually comes out of the cash out to you, and you will just have to increase your loan amount and your payment if you want more cash out. Here is an example:
$300,000 current loan x 80% = $240,000 x 6.5% Interest rate. Pre-Payment Penalty = $7,800.00 If you were getting $20,000 in cash out, now you will be getting $12,200.
If you only need a little cash out to resolve your situation, then you would have to refinance the entire loan to do so. Some lenders might now approve you for cash out based on your credit score. That means you could end up in a new loan with a 36 month pre-pay at much higher interest rate with no cash to help with the new payments. To sum this up, if you refinance your first mortgage you could be looking at an interest rate as high as 12%, long term pre-pay of up to 36 months, and the possibility of no cash out. What about a short term loan? Would you like to leave that low interest rate where it is? How about NO pre-payment penalty? Let me explain what a HELOC is and what its benefits are.
What is a HELOC and what are the benefits?
A HELOC, which stands for Home Equity Line of Credit, is a small loan that is based on the equity in your home and tailored to fit your needs. The qualification requirements for this are within the title of the loan, Home Equity. We must verify the amount of equity you have before we can close your loan and send any cash amounts to you or your lender. Have you ever been denied a loan because you didnít qualify based on your credit score? We know this can be frustrating, thatís why our HELOC has NO FICO REQUIREMENTS. Itís ok if you have collections or past due amounts on your credit; that will not stop you from obtaining a new HELOC. We might encourage you to pay off your debts to improve your credit profile, but it is never a requirement. This loan is designed for the borrower with less than perfect credit. Do you have trouble verifying income? Whether it is because of job gaps, cash transactions or being self-employed, there is no income verification with our HELOC. In most circumstances, if you get a small HELOC with a higher interest rate, you will actually save money compared to refinancing and taking a new 1st mortgage. Let me compare the options for you and answer any questions that you might have with your current situation. I wish to personally thank you for reading this document, and please call me so we can start working on a new HELOC for you.