|
Jeff:
I certainly appreciate your detailed answer.I'll try to explain a bit
more throughly what I'm looking at.
The 20% portion of the loan is a 'personal credit line' based on
revolving credit. I fully understand what you have explained in terms of
deductibility on mortgage interest payments.
While I admit I apparently didn't dig deep enough on the ramifications
of this loan, this is what threw us.
The loan was initially for $65,000 at 6.00%
We know that the rate on this can float from month to month. It opened
at 6%
The first invoice we received was for a payment of $228.33.
I do not know why that due amount was lower than expected. I'll ask
them but feel it might have something to do with our closing date (not a
full 31 day billing cycle).
In any rate, a few days before due date we paid the amount due ($228.33)
PLUS an additional $1000, fully expecting that THAT $1000 would be
subtracted from the principal.
We were really shocked to see our latest statement.
Here are the numbers.
APR went to 6.25% (I've to set up automatic transfer to get a 1/4 pt
reduction on the APR.....ok fine
Total Previous Balance - $68,728.33 (They added the finance charge to
the previously due principal)
Payments - $1228.83
Finance Charge $355.54
Total New Balance - $67,855.54
APR - 6.25%
We expected the additional $1000 (it was provided as a second payment
labled 'for principal only') to be substracted from the principal. In a
sense it was.
$68.728.33
- $1228.33
-----------
$67,500.00
But then they calculated the 6.25 APR monthly interest.
67,500 x .0625 = $4218.75/12 = $351.56
and added the finance charge (in my case) $ 355.54 to the principal and
my 'new balance' is now $67,855.54
That's why I keep calling it revolving credit. Its just like a credit
card and frankly, we didn't expect that.
Obviously the only way you keep from taking a bath with this type of
loan is pay it off. But we are not in a position to do that.
We can afford the payments, have excellent credit and no debt at all
aside from the house.
In your opinion do you think we might have any options with this re
refinancing just this 20% part or pay it off with another more
conventional loan?
Or is that difficult with this type of 'second mortgage'.
Any other options?
Once again, many thanks in advance for your insight.
Gerry
"Jeff Strickland" <crwlr@yahoo.com> wrote in
news:bd-dnecw8Pvaa_bfRVn-sw@ez2.net:
>
> "Gerry" <emailinside@email.com> wrote in message
> news:Xns964287A48E475buckeyefanbuckeycom@216.196.97.131...
>>I've a few questions on what options I might have if any.
>>
>> I recently purchased a new build and took an 80/20 interest only 3
>> year ARM. Having previously always bought via VA, I did not fully
>> consider the ramifications of the 20 portion being a 'personal line
>> of credit' in terms of the 'revolving credit' aspect of the deal.
>>
>
> The 20 isn't, or it is not in my state, a personal line of credit or
> revovling credit. It is a full on mortgage secured by a lien on the
> property. The reason you take this kind of loan is that you don't
> want to take PMI (private mortgage insurance) with your 100% loan. The
> PMI is a feature of the VA loan, but these days the VA loans are not
> very competitive and they aren't large enough for many new home
> purchase transactions.
>
>
>
>
>> I made an addtional payment of $1000 on the 20% portion of the loan
>> on the first payment and it was a real eye opener to see that the
>> 'principal' was not reduced by $1000 as it had the finance charge
>> added like a credit card.The 20% portion is also subject to prime
>> rate fluctuations.
>>
>
> Well, of course. If you pay $1000, the first thing the lender will
> take is the interest that is due, the remainder will go towards the
> principle. This is true of any mortgage loan, with the exception of
> the impounds that will be taken if there are any impounds - impounds
> will be set aside before the principle is reduced.
>
>
>
>> I had previously talked to the bank about making addtional payments
>> on principal only and got a story about how I had a 3-5 day period
>> around the posting date when I could do that. I'll see them again
>> for a clarification but I got the impression that if I made
>> additional payments outside that window, I'd not get 'full
>> credit' for those payments.
>>
>
> You didn't tell us what the loan amount was or the rate, but if we
> made some simple asumptions, yo could tailor the numbers to fit your
> particular scenario.
>
> Let's assume the 2nd is for 50,000. I have not got my loan caluclator
> handy, but let's also assume the interest rate is 7.5%, the interest
> due on the note would be 312.50 (50,000 x .0750 = 3750 / 12 = 312.50).
> This means that the first 312.50 of your payment will go to service
> the interest, the remainder will service the principle. Many 2nd's are
> a Home Equity Line of Credit (HELOC) that lets you make interest only
> payments for the first 10 years. If you had a statement with a Payment
> Due of 312.50, then this is the interest that the bank demands you pay
> them. Any additional monies you pay at the time of payment will go to
> service the principle. The subesquent payments will be recalculated on
> the remaining principle.
>
> If you made additional payments outside of the window, those payments
> would not go to the principle in their entirety, the bank would
> service some of the interest that has become due shine the last
> payment. Your best strategy is to make additional payments at the time
> of your payment that is currently due.
>
>
>
>
>> Current balance on the 20 is 67885 on a 6.25 APR.There are 31 days in
>> the billing cycle.
>>
>> My questions are:
>>
>> 1) Is there any payment frequency/amount option(s) which would
>> minimize the
>> finance charge?
>>
>> 2) Any other options that would reduce or eliminate the revolving
>> credit aspect of this, i.e re-financing the 20% portion only or
>> whatever?
>>
>
> I'm not sure what the "revolving credit" aspect is that you keep
> talking about. If you have a HELOC, then perhaps that is the revolving
> quality that you are talking about. If you have a HELOC, then it mose
> certainly does have a revolving quality. That is, as you repay the
> principle, that principle can be used again during the first 10 years
> of the loan.
>
> If you took out a $70,000 note for 6.25%, then you could calculate
> your payment by multiplying the principle by the rate, and dividing
> the result by 12. This may vary a small amount due to the term of any
> particular billing period, but you should be pretty close. Using this
> formula, your payment should be roughly $365.00. If you made a payment
> of $1000, then your principle should be reduced next month by $635, so
> your next payment should be based on $67,885 - $635 = $67,250. The
> next payment should be $350, so the same $1000 you send in should
> reduce the outstanding principle by $650, and so on.
>
> Since in this scenario, you will have reduced the principle by $1285
> over two payment cycles, then you will have an available balance of
> this amount, plus any previous principle reductions. This means that
> you can used mortgage dollars to do landscaping work or buy the big
> screen, and transfer the interest from your credit card to your
> mortgage. The reason you might want to do this is that mortgage
> interest is tax deducatble, credit card interest isn't. And, mortgage
> interest is lower so you save on several fronts. You have the repaid
> principle available to you for furture spending for a period of 10
> years, after 10 years has gone by, you have 15 years to repay any
> outstanding balance.
>
> Another benefit of what you did is you avoid the PMI. PMI premiums are
> not tax deductable but mortgage interest is. If you took out a 100%
> loan and carried PMI, the payment would be higher than the payment on
> the 80/20, and the interest you pay on the 20% is tax deducatble
> whereas the payment to the PMI has no tax advantage.
>
> So, the short answer to your question is, pay more than the bank asks
> for, and include the overpayment in the payment that is due. This will
> reduce your outstanding balance by the difference in what is due and
> what you paid them. The subsequent payments will be recalculated on
> the lower principal balance.
>
>
>
>
|
|
Re: Question on an 80/20 3 Year ARM
