I’ve got 80/20 mortgages. What’s the best way to get rid of the 20?

2 Responses to “I’ve got 80/20 mortgages. What’s the best way to get rid of the 20?”

1. OSSIE says:

   October 18, 2010 at 3:02 am

   Clean the house up, get a good legitimate appraisal and collapse the two into one 30 year mortgage @ 6%. If you get paid more than monthly, make the payments every two weeks and save yourself a lot of interest. If you have the chance of extra money at the end of each year (e.g. bonus) make sure the mortgage has a clause permitting you to pay an extra amount (e.g. upto10%) at the end of each year. you will pay off your mortgage in about 7 years!!!
2. mrdivots says:

   October 18, 2010 at 3:53 am

   A lot has to do with how much gambling you want to do.

   Here are a couple of things I would look at if I were you:

   1. What is your current total monthly payment between the two loans?

   2. What would be the total monthly payment with the new solo loan?

   3. The difference between the two monthly payments is the pain level number.

   4. Then the question becomes what could happen to make the difference greater or smaller.

   Lets say you wait and rates go up to 6.5%, then your differential probably increases…you lost your gamble.

   Lets say you wait and rates go down to 5.5% , then it went in your favor…you won your gamble.

   But there are wild card issues. I don’t know about your area, but in most areas, homes are decreasing in value anywhere from wee bit to quite a bit.

   Here is what can happen from there.

   You want to jump on the 5.5% rate (yea, you won) but the rate has gone down because overall conditions have worsened. With the worsening conditions, homes could go down in value even further. What if you can get the great rate but your home won’t appraise high enough to get you out of the second.

   Now you’re really stuck because you can’t take out the second and refinance with a new solo loan but you have to take out the second soon. You’re screwed, but you won the interest rate gamble. It’s like getting killed walking across the street while you were in the cross walk, so you were right, but so what since you’re still dead

   This is how a good number of foreclosures are occurring. People need to refinance to get out of their second loans (or their adjustable firsts), have good credit but little cash, but their home won’t appraise, so they can’t get a replacement loan. They can’t even sell it to break even. Bingo, they’re in foreclosure with no escape. Nightmare.

   The other wild card issue is that lending requirements have risen. Lenders are raising the bar in an effort to not create more bad loans. So rates could be great, your home could appraise, but you no longer qualify because of higher, tougher lending requirements.

   Lots of gambles in waiting. If you are planning on staying in that home for more than 4-5 years and enjoy sleeping at night, I’d get the refinance done yesterday.

   If value drops, they’ll probably come roaring back over time but nobody knows exactly how long and if you don’t have to sell and you are comfortable with your solo loan that you got in May 2007, all is well.

   Rates are very near 40 year lows, so there is more likelihood of rates rising, than dropping.

   For you to win the gamble by waiting, everything would have to fall exactly in your favor and in the exact correct time.

   Now you’re a smart person, how often has everything fallen in exactly in sync and at the right time in your life, all in your favor? I thought so.

   It could happen but you could also be hit by a falling piece of the planet Mars, but the odds are very, very heavily against you.

   Hope this helps.
   Scott

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