My Mom fully owns her house and it’s valued at around 300K. She used to have a good credit score but it dropped to 680 after she co-signed for a relative who then failed to pay. She’s retired, has no debts, and has an income of about 40k annually from her pension and social security.
She needs to withdraw 100k in equity from her home. Her local credit union has approved her for a loan, but she hasn’t finalized the deal yet.
Details of the loan:
30-year conventional loan (refinance)
Interest rate: 7.25% (reduced with points)
APR: 7.625%
Monthly payment: $716
Loan amount: $105,000
Points: 1.625% of the loan amount ($1,706)
Origination fee: $995
Total closing costs: $5,414
Amount to the borrower: $99,586
Estimated closing costs financed: $5,754
She’s okay with the monthly payments and feels fortunate to get the loan with her current credit score, but I’m wondering if this deal is reasonable given her financial situation. She hasn’t checked other offers yet.
That actually sounds quite good. I recently looked into a home equity loan and was quoted rates between 9-9.5% with monthly payments around $1007 for a 100k loan.
Pax said:
That actually sounds quite good. I recently looked into a home equity loan and was quoted rates between 9-9.5% with monthly payments around $1007 for a 100k loan.
That’s a first mortgage, not a second mortgage, so they aren’t the same.
Pax said:
That actually sounds quite good. I recently looked into a home equity loan and was quoted rates between 9-9.5% with monthly payments around $1007 for a 100k loan.
Pax said:
That actually sounds quite good. I recently looked into a home equity loan and was quoted rates between 9-9.5% with monthly payments around $1007 for a 100k loan.
She should be getting a much lower rate given her low loan to value ratio. Her credit score shouldn’t have this much impact. She really should check other options.
This looks like a cash-out refinance rather than a HELOC. As others have mentioned, this isn’t a great offer. She should definitely look around more. A 680 credit score isn’t terrible.
It looks like she’s getting a quote for a cash-out refinance instead of a HELOC. She should definitely get more quotes, especially if she’s still technically responsible for that co-signed debt, which could affect her debt-to-income ratio. I’m not sure about current rates, but if the costs to buy down the rate aren’t paid back in under 24 months, I wouldn’t recommend going for it.
Ren said:
Income doesn’t drive the interest rate. She should definitely get at least two more competitive quotes.
Considering her other financial responsibilities and the drop in her credit score due to previous issues, she might be seeing higher rates. More quotes would be wise.
Just the other day, Nbkc bank offered me a 6.875% rate with no points for a cash-out refi on a rental property, and my credit score is 706. Rates might be even better for an owner-occupied property. Credit unions aren’t always the most competitive, so it’s worth checking with others. Whether or not this is financially smart for her depends on her need for the cash, but her home equity is likely her cheapest option.
The offer isn’t bad. Her credit score is average, but the low loan-to-value ratio helps. People often overlook that cash-out refinance rates are generally higher than rate-term refinance rates. Also, smaller loan amounts typically have higher rates. In her case, this explains the charges. Shopping around might yield slightly better terms, but don’t expect a huge difference.