Refinance Question-NEED QUICK ANSWER PLEASE!!

[cocounselor23]

HELP! Wife and I are looking at getting a credit line up to 100% of home value. Wife recently had surgery and has been unable to work, so we have maxed out our credit. FICO score is about 630, I have been getting all kinds of different offers and not sure what to do. Home is worth at least $290k and existing mortgage balance is $262k. We have about 20k in revolving debt and I was really just looking to consolidat that. Some companies have offered to refinance the entire loan, which is fixed at 5.5%. I know the interest rate will go up if I do this, but these companies are also proposing to get rid of mortgage insurance (right now we pay $150 a month for this). The idea would be to improve credit score and do another refinance in a year or so. Have been quoted a 2/28 loan (fixed for 2 years and adjustable thereafter) with interest rate of 6.4%. This company claims it can value my house at over $300k but I know that is high. The would loan 302k, which would pay off the first loan, all credit cards and even give us about $5k cash out to pay some of our legal bills. The loan discount/origination fee is VERy high at 3.4% (over $10,000!!). I definitely have reservations of this loan for both the overstated value of our home's value and the high loan fees. I know I am going to pay a little bit more due to lower FICO score. I feel more comfortable just doing a second. What do you think? Thanks for your help.

[onetime2]

Sounds like a VERY bad deal. You are in a bad situation and this deal will only make it worse. Interest rates will go up over the coming several years rather than down. Locking the rate for the first two years will get you very little since after that you'll likely be looking at big jumps in interest.

My advice would be to avoid this loan and do whatevery you can to eliminate the rest of your debt. Sell unneeded luxuries, borrow from family or friends (if possible), cut every expense possible, etc. This loan will put you in a bigger hole than you're already in.

Additionally, there is a decent chance that home values will cool in the coming years and you will be hard pressed to get out from under this should that happen.

[cocounselor23]

That's what I am thinking as well. If I can get a debt consolidation loan on a second, I will do that, but I see no reason to touch the first mortgage, especially since it is fixed at 5.5%. I think these loan companies are only recommending that so that they can charge higher loan fees and then sell the loan and make additional profit. Thanks for your quick reply!!

[NoSoup]

Do not do that loan. If you take out a loan higher than your home is valued at, you'll have a very tough time selling it in an emergency.

630 for a Credit score is not too bad, so $10k+ in closing costs is outrageous. If your score were 500-580 I could understand such a large fee, but I can't even imagine what would cost that much for a 630 score.

I would check into getting a second, possibly a HELOC (home equity line of credit) Most HELOCs have variable interest rates, but offer an interest only payment just in case you guys have a difficult month.

[gar1976]

Don't risk being upside down on your house.

[90degree]

a 630 score will get ya about 95% CLTV on a HELOC.. using fully documented income.