Pre Payment Penalty
Q: One mortgage company is offering to consolidate 1st mortgage, 2ndMort(line of credit), few credit cards into one loan without the "Pre-payment" penalty at 7.95% fix for 30yrs. The current situation is as follows: 1st mortgate at 5.10% 30yrfixed 2nd mortage(line of credit) at 9.10% variable (1.75%+ prime) creditcards apr ranging from 11- 24.99% Would it be beneficial to REFI at this point ? or just wait for another few months (say 4months) where equity would be much higher and total household income would be greater?
A: 7.95 is VERY HIGH. You MUST have serious credit problems to even consider such a rate. I am currently doing pretty much the same refi as you -- a 1st, 2nd, a car loan, and some credit cards. I am at 65% LTV -- 65% of my value is tied up in the new mortgage -- and my rate is at 6.375%. Rates are falling, and I have to stall the process for 30 days to avoid a prepayment penalty, but if I got a new lock today, I could lock for 6.125%, fully a quarter point below where I am currently locked (but the current lock will expire before my loan is closed). My new loan will have no prepay, and my current loan has a prepay for 3 years, that will expire in Sept. DO NOT shy away from the prepay IF the prepay term is shorter than your plan to refi again in the future. If you intend to refi in 5 years, and you get a 3-year prepay on this loan, what's the big deal with the prepay? All a prepay does is forces you to keep the loan for a certain term. It pays the investors that give money to the lending industry.
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