Refinancing ( Second Mortgage vs Home equity loan )
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?
Can I take a home equity loan or line of credit with my equity of 5%?
Does that get affected if we do the refinancing with the second loan
as a home equity loan?
This is our first house and we are not familiar with many of the
issues with loans. We really appreciate the help of the experienced
netter.
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).
I doubt it. Most lenders won't touch a 3rd mortgage with that loan:equity
ratio.