|
Posted by Evandro Menezes on January 14, 2008, 7:18 pm
Some years ago, my mortgage lender contact me about refinancing my
home at zero cost. The rate wasn't the best, but good enough and much
better than my current one. That coupled with the zero cost, settled
it in my mind.
I was fully informed that it was actually a HELOC for the same value
as my mortgage balance and that, for all purposes, it would be
equivalent to a new mortgage, including tax-wise. Or is it?
TIA
|
|
Posted by John A. Weeks III on January 14, 2008, 8:11 pm
In article
> Some years ago, my mortgage lender contact me about refinancing my
> home at zero cost. The rate wasn't the best, but good enough and much
> better than my current one. That coupled with the zero cost, settled
> it in my mind.
>
> I was fully informed that it was actually a HELOC for the same value
> as my mortgage balance and that, for all purposes, it would be
> equivalent to a new mortgage, including tax-wise. Or is it?
Basically the same. What matters is what position the loan is
in. Your H/E loan is in first place, so it acts the same as
a first mortgage.
BTW, I am skeptical about the zero cost. All loans have costs
and fees associated with them. What you likely meant is "no
out of pocket payments". If you look at the closing statement,
you will probably find that the fees were rolled into the new
loan, and now you are paying for the fees over 30 years rather
than paying them up front and being able to deduct them from
your taxes in one shot. Often times when fees are rolled into
the new loan, the borrower doesn't notice them, which allows
the lenders to put in all kinds of junk fees and charge outlandish
amounts for the fees. That no cost deal was probably the most
expensive loan you could have found. Always think total cost,
and not just cost per month.
-john-
--
======================================================================
John A. Weeks III 612-720-2854 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
|
|
Posted by kastnna on January 15, 2008, 11:40 am
> BTW, I am skeptical about the zero cost. All loans have costs
> and fees associated with them. What you likely meant is "no
> out of pocket payments". If you look at the closing statement,
> you will probably find that the fees were rolled into the new
> loan, and now you are paying for the fees over 30 years rather
> than paying them up front and being able to deduct them from
> your taxes in one shot. Often times when fees are rolled into
> the new loan, the borrower doesn't notice them, which allows
> the lenders to put in all kinds of junk fees and charge outlandish
> amounts for the fees. That no cost deal was probably the most
> expensive loan you could have found. Always think total cost,
> and not just cost per month.
You are right to be skeptical (as am I). Its the "no such thing as a
free lunch principle". Even if there really were no charges rolled
into the loan, the bank recoups the cost by charging higher interest
than they would have otherwise. And as John said, I am willing to bet
the charges were there anyway, just buried.
|
|
Posted by Augustine on January 15, 2008, 3:28 pm
>
> Often times when fees are rolled into
> the new loan, the borrower doesn't notice them, which allows
> the lenders to put in all kinds of junk fees and charge outlandish
> amounts for the fees. That no cost deal was probably the most
> expensive loan you could have found. Always think total cost,
> and not just cost per month.
It's been a few years, but I pretty sure that I scoured the agreement
for hidden fees. I'll check it again, but can you provide any tips
about how they could show up?
Indeed, I got a rate about 0.5% higher than I could otherwise.
Unfortunately, that rate cannot be beaten nowadays...
Thanks John and Kastnna for your replies.
|
|
Posted by John A. Weeks III on January 15, 2008, 6:42 pm
In article
> >
> > Often times when fees are rolled into
> > the new loan, the borrower doesn't notice them, which allows
> > the lenders to put in all kinds of junk fees and charge outlandish
> > amounts for the fees. That no cost deal was probably the most
> > expensive loan you could have found. Always think total cost,
> > and not just cost per month.
>
> It's been a few years, but I pretty sure that I scoured the agreement
> for hidden fees. I'll check it again, but can you provide any tips
> about how they could show up?
>
> Indeed, I got a rate about 0.5% higher than I could otherwise.
> Unfortunately, that rate cannot be beaten nowadays...
>
> Thanks John and Kastnna for your replies.
I don't recall if you posted any of the terms. So, lets say
that this was a true H/E loan from a real bank, it was for $50K,
and you got a rate of 6.5% fixed. Your total payments over 15
years would be $78K. At 6%, the better rate with closing costs,
you would have paid $75K. The net is that your "no cost" loan
cost $2450. Closing costs would have been things like the
appraisal, recording, maybe a tax fee, etc. No more than $500
at the outside. So, the net cost of the no cost loan was $2000.
I don't know about where you live, but where I live, $2K will
pay for a lot of trips to Dairy Queen.
-john-
--
======================================================================
John A. Weeks III 612-720-2854 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
|
| Similar Threads | Posted | | refi 1st mortgage & heloc?? | May 25, 2008, 12:05 pm |
| To HELOC, or not to HELOC? | May 18, 2007, 10:14 am |
| HELOC or Loan? | April 7, 2008, 5:25 am |
| Heloc-pay off 401k loan | August 2, 2007, 1:35 pm |
| Re: Heloc-pay off 401k loan | August 6, 2007, 11:28 am |
| Re: Warning about HELOC as Emergency Fund | February 11, 2008, 2:47 pm |
| Re: Warning about HELOC as Emergency Fund | February 12, 2008, 9:19 am |
| Re: Warning about HELOC as Emergency Fund | February 12, 2008, 4:21 pm |
| Use of HELOC to fund Retirement Home During Relocation? | October 7, 2006, 8:29 pm |
| When do most pay off their mortgage? | January 19, 2007, 2:26 pm |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap