Refinancing, 2nd Mortgages, and... WHY?

I own a condo with my wife, and recently, several different people have mentioned that now would be a good time to refinance. I get very confused over long-term loans, and would ask the more knowlegeable Dopers for your help.

Some specifics: 30 yr. loan @ 7.75%. Roughly $84,000 in principal left. Only 1-1/2 years into current mortgage.

Purchased at $89,500 in August 1999. Valued now at roughly $120,000.

  1. Should I be looking to refinance into, say, a 15 year mortgage?

  2. Can I somehow pay off a $10,000 credit card bill (@9.99% APR)

  3. What fees and such would factor into this? Do I need “up-front” money?

  4. Am I really talking about refinancing, or actually a 2nd mortgage?
    Thanks in advance- any informed information is GREATLY appreciated! :smiley:

Oh yeah- what’s the process to kick all this off? Do I get an appraiser, then go to the banks, or what?

Thanks again

Let’s take these one at a time, smoke.

First you need to know the current mortgage rates in your area. As a rule of thumb, you save $30 per month for every 1/2% drop in the interest rate. Figure the amount the loan will cost (fees, points, etc. - not principle) and divide that by the the number of months you plan to stay in the house. If that amount is lower than the monthly payment savings times the number of months you plan to stay, a refi is probably a good idea.

If the rates make sense and you can swing the higher payment then a 15 year mortgage is the way to go. A 15 year, $100,000 mortgage @ 7.5% will save you $74,000 in interest over the identical 30 year mortgage. The monthly payment on a 15 year loan will be about 1/3 higher – $927/mo vs. $669/mo. in the above example.

If the 15 year payments are too high you can do basically the same thing with a 30 year loan by paying one extra payment per year. Either send an extra payments once a year or divide the principle and interest by 12 and include that amount in addition to your regular monthly payment. Make sure the excess is applied to principle, not interest. This will cut your 30 year loan to ~18 years and save a ton of money.

Sure, so long as you have enough equity in the home to cover the additional principle. As a rule, a bank will loan up to 80% of the value of the home. In your example of a $120,000 value you could expect to refinance up to $96,000, more than enough to cover what you owe on your home plus the credit card debt.

That said, here are some caveats:
-your credit card debt is unsecured. If you default on your card debt, they cannot take your house. By rolling the CC debt into your refinance you are effectively offering your house as collateral.
-in your case, the additional $10,000 principle (84,000 vs. 94,000) @ 7% will mean an additional $100 per month in mortgage payments. If you can pay the CC off early without rolloing it into the refi you’ll be better off.

Matbe, maybe not. Some lenders are offering no fee refinancing, check around. If there are fees invovled they can more than likely be rolled into the loan amount. This will, however, cost you in the long run.

Refinancing means paying off your current mortgage and replacing it with a new mortgage. A second mortgage is new mortgage in addition to your existing mortgage (2 payments). You’re talking about a refi.

Shop around for mortgage lenders first. They will be able to guide you through the process.

Good luck!

As a rule of thumb, you save $30 per month for every 1/2% drop in the interest rate.

Doctor Jackson,

How can the above possible be true as it does not take into account the size of the loan?

Quicken.com has some helpful calculators for just this sort of thing.

http://quickenloans.quicken.com/Centers/refi.asp?source=QFN_SEPT00hmpgdirrefi.Qsept00

Mea culpa. Re-word to:

As a rule of thumb,on a $100,000 mortgage, you save $30 per month for every 1/2% drop in the interest rate.

I wouldn’t think there’s any reason to pay more than you have to on 7.5% interest. If you can make 10% easily with even a not-so-good mutual fund.

Of course, that’s just me regurgitating(sp?) what Bruce Williams says all the time on his radio show.

If you go to http://www.brucewilliams.com he may have written about it.
My first post. I sure hope I ain’t wrong :slight_smile: