Consolidating Debt - Refinance or 2nd Mortgage?

Consolidating Debt - Refinance or 2nd Mortgage? - Homeowners who need to consolidate their high interest unsecured debts often wonder what is the best way of doing it. Is it best to refinance your first mortgage or take out a second mortgage or Home Equity Line of Credit?

Recent increases in the Prime Rate have made the Home Equity Lines of Credit much less attractive than they were a few years ago.

A good mortgage broker can work out a cost analysis breakdown for you to show you the pros and cons of refinancing your first mortgage to consolidate your debt versus taking out a second mortgage or home equity line of credit to consolidate your debt. One advantage of a home equity line of credit is that many times you can obtain one without any closing costs at all. In the right situations this can be very beneficial to a consumer instead of paying the closing costs on a first mortgage, especially if there is any chance of not keeping the loan very long or moving.

Will I need to get a new appraisal? - Most of the time, you will need a new appraisal if youre applying for a new mortgage loan. This fee varies in different parts of the country, but should range from $250-400 for a single family appraisal.

Even though you're the one actually paying for the appraisal, your broker is the actual owner of that document, and the report will be issued in the broker's name. No lender will accept an appraisal ordered by the borrower in a mortgage transaction.

If your appraisal is older than 6 months generally you will need to obtain a new appraisal. Also, some lenders will require a new appraisal after as little as 120 days. Other lenders may accept an appraisal that is up to 12 months old.

If you are borrowing a low percentage of the value of your home (commonly know as LTV) and you have other factors that mitigate the risk of your loan, Fannie Mae's Desktop Underwriter will often approve the loan with an appraisal waiver. This means that when your loan is submitted to the lender an appraisal waiver document is submitted in lieu of a new appraisal. This can save the borrower from the expense and trouble of getting an appraisal. If you are borrowing a low percentage of your home's value (65% or less) be sure use a mortgage professional who is aware of this.

When ordering the appraisal make sure you are the one who actually places the order. By doing this an paying for the appraisal COD it will ensure you complete ownership of the appraisal.

Usually, if you switch mortgage companies, you will have to pay for another appraisal. Sometimes the new mortgage company can get the original appraiser to reassign the appraisal for a lower fee. Usually, however, they cannot.

Am I getting a good deal? - If youre concerned about whether youre getting a good deal or not, one thing to look at is your interest rate. If you have perfect credit, you should be getting the best interest rates.

Where do you find the current interest rates? Many financial websites list current mortgage interest rates, so you might want to start there. Also, many newspapers publish mortgage interest rates from different lenders in their weekly "real estate" section.

Another way to figure if you are getting a good deal is if your Certified Mortgage Planning Specialist is able to show how this fits into your short and long term financial and investment goals. If it accomplishes this then the deal you are getting is quite exceptional.

When it comes to wondering whether you are getting a "good deal" on your mortgage loan, it's best to never forget that age old saying. "If something sounds too good to be true, it probably isn't".

There are many variables to consider. These include your credit score, your credit history, your debt to income, the loan to value of the property, the property type, your geographic location, the loan type, the loan amount, the loan purpose, length of employment, and whether your income and assets can be fully documented, partially documented, or not documented.
Your loan officer should be able to explain to you how each of these affect your rate.

Also think about the service you are getting because if someone isn't returning calls in a timely manner, they are more likely not making you the priority, therefore the deal is probably not good either.

Not only do you want to pay attention to the interest rate and what the best interest rates are at the present time to determine if you are getting a good deal or not, but you want to think about what type of mortgage loan you are getting. Even if you have the best credit and you see rates advertised that are a little lower than the rate you are receiving you should ask why your rate is not lower. Many times there are rate adjustments that will affect your loan that you might not have even thought about. For good-excellent credit borrowers if you are obtaining a conventional loan, most of the time these adjustments are going to be standard no matter what lender you go to. For example if you had an 800 credit score but you were doing a cash out refinance at 90% of the value of the appraisal that was done on your home, you would probably have a rate bump for the cash out and for the high LTV. Another example is if you were getting a mortgage loan and you did not want to pay PMI, there are ways to accept a slightly higher interest rate in lieu of the PMI so therefore you would have a rate bump for that as well. There are many other things that can affect your rate positively or negatively so be sure to ask why you are receiving the interest rate you are receiving if you are concerned whether you are getting a good deal or not with your mortgage. A few other examples of items that may affect your interest rate are your loan size, your income documentation type, whether you are doing a debt consolidation refinance versus a rate and term refinance, amount of equity left after refinance, amount of down payment on a purchase and many, many others.

Conforming rates fluctuate daily, if not throughout the day. While he/she has no control over the rates, an experienced mortgage professional will help you plan the timing of your transaction to get you the best deal possible.

The increased popularity of "stated" (i.e. not verified) loans in the last few years have, in many ways, made it harder for a layperson to rest assured that their deal is the best they can get.
I offer this simple rule of thumb:

The less you document or prove(whether it be income, assets, or both) from W2s, tax returns, paystubs or bank statements, the higher your corresponding rate will be.

Therefore, a borrower who can qualify "full doc." (nothing stated, everything verfied) will always qualify for a lower rate than a borrower who needs to state something. A "No Doc." loan or "NINA" (No Income, No Assets" loan will get the highest corresponding rate as the lender is approving your loan on nothing but your credit and your equity. This is how lenders "price in" the risk (as they see it) associated with your loan .

When it comes to getting a good deal there are several things that need to be considered. One tool people use is to figure out their break even point. Take the cost of the mortgage and divide that by the monthly savings. This will give you an idea of how long it will take you to recover from the cost of the mortgage.