Mortgage question--are variable rates no-nos?
Just curious about the community’s opinion on mortgages right now. We’re deciding between financing 80% of our purchase with a jumbo loan at just over 7% (fixed)–or taking out a conforming loan for 65% of the price at a much lower rate and financing the remainder 15% through a home equity line-of-credit (still with 20%…
Just curious about the community’s opinion on mortgages right now. We’re deciding between financing 80% of our purchase with a jumbo loan at just over 7% (fixed)–or taking out a conforming loan for 65% of the price at a much lower rate and financing the remainder 15% through a home equity line-of-credit (still with 20% down).
The latter rate is, of course, variable (at prime) which we are worried about with the uncertainty of financial markets. But spliting the mortgage in this way could save us a lot if rates don’t skyrocket.
Any advice? We plan to stay in the place for the long-run–hopefully, 10 years or so.
Thanks!
I recently was approved for a VA home loan. When the paper work went to the underwritter
I was required to write several letters.
1 explaining why I filed bankrupcy in 2002
2nd since I was retired What I was going to do to be sure I pay my bills on time/live within my means on a fixed income
3rd What I have learned from past derogatory credit history that will help me continue to make payments on time.
Then they requested 3 months of bank statements on how I spent my money.
According to the Veteran Admin website they should only hold bankrupcy against you if it is 2 years or less.
My credit scores were in the 600’s highist 658.
They approved the intial loan application. But when the underwriter got it it was everyday want a letter treating me as a little kid. This company only does VA loans
Can they do this? make you write letters, explain and prove how you spend your money?
I recently was approved for a VA home loan. When the paper work went to the underwritter
I was required to write several letters.
1 explaining why I filed bankrupcy in 2002
2nd since I was retired What I was going to do to be sure I pay my bills on time/live within my means on a fixed income
3rd What I have learned from past derogatory credit history that will help me continue to make payments on time.
Then they requested 3 months of bank statements on how I spent my money.
According to the Veteran Admin website they should only hold bankrupcy against you if it is 2 years or less.
My credit scores were in the 600’s highist 658.
They approved the intial loan application. But when the underwriter got it it was everyday want a letter treating me as a little kid. This company only does VA loans
Can they do this? make you write letters, explain and prove how you spend your money?
Glad you are getting great feedback..I just wanted to let you know about a new guy I found online Brian Scott Cohen. I just locked in my rate on a 2 family property Jumbo mortgage my rate through Brian is unreal. I heard you talking about 7% on Jumbo. I got 6.5% which is amazing..Here is his number it can not hurt 646 584 8009
Thanks again for a great discussion and excellent advice. All things considered, I decided that a HEL (loan not line-of-credit) was the best option here–since it gives us the lower fixed rate without the uncertainty of the variable rate. For some reason, the rates we were quoted for a HEL were higher than 7%; perhaps it’s because they are higher with the bank we are getting the low fixed rate with (cause my credit score is in the 700s). But even with the higher HEL rate, this scenario makes the most sense.
if anyone is interested, my prediction on interest rates is as follows:
1. In 2008, interest rates will go a bit lower to maintain economic growth in election yr.
2. In 09, inflation fears will push rates above where they are now.the main export o
3. In 2010, our new alien overlords replace our current economic system with one based upon Belgian waffles, Earth’s main export.
HELOC’s are stupid for this kind of situation, you should consider a HEL (Home Equity Loan) instead – You can get a fixed rate under 7%, benefit from the low conforming rate on the bulk of your mortgage and save yourself a ton of money on a possible refi down the road with HELOC…
First of all, adjustable rate mortgages are not “bad” or “risky” per se, they just expose the borrower to a different set of risks than a fixed rate mortgage. From a financial perspective, you want to borrow at an adjustable (or floating) rate if you think interest rates are going DOWN, and are at risk if rates go up. With a fixed rate, you gain if interest rates go up, and lose if they go down. By splitting your debt obligations among both, you are effectively reducing your risk profile (as well as your potential for gains due to interest rate shifts).
Assuming your 10-year horizon is reasonable, I think your plan sounds like a good one. (Any chance you can finance the fixed rate portion at a 15-year rate?) You may want to set that savings aside if interest rates do come down, however, in case they start to go back up in the future.
One thing to remember. HELOCs are typically an INTEREST ONLY payment (though you are welcome to pay down principal as well at no additional cost), so you won’t be building equity in that portion of the debt unless you add more to the monthly check.
Hi Mortgage,
I am doing exactly what you are considering right to avoid the jumbo, partially because of the uncertainty around jumbos, the more difficulty qualifying, and the higher rates.
I am banking on interests staying stable or going down over the next couple of years, which will give me time to pay of the HELOC. Given the outlook for the economy and Fed policy, I think this is a reasonable bet. Otherwise, I can lock in at the then current rate at any time without penalty to protect myself from rising rates.
I see huge differences on HELOC rates, so shop around. Arrange for an automatic deduction from an account at the same institution and you may get another .25 off the rate.
You get full tax deductions for interest paid on the HELOC as well. Given the spread between jumbo and conforming rates, the current downward trend on Fed rates, which ultimately drive HELOC rates, and if you make sure you can convert to a fixed interest loan later, your plan makes sense to me.
FYI – I was in a similar situation and evaluated that the 7 year fixed-rate, interest only jumbo + adjustable rate heloc allowed me a little more breathing room on a monthly basis. The heloc was a small portion and I reasoned that I could pay more down on the principal with rates on a downward trend (and likely to continue or stablize through 2009). Please note, I just locked in a refinance of my original jumbo at 5.625% (fixed IO), no fees or points at Citi – this morning. Rates are falling and depending on your situation and if you are disciplined, a fixed-rate interest-only mortgage gets a very low rate. The difference between 5.625% and 7% on a monthly basis (use 500k for mortgage – interest only vehicle) is about $573/month. I prefer the fixed rate IO on the jumbo. Not for everyone, but maybe a consideration. Posts 11:56, 12:41 and 1:28 offer good input