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should i??
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Posted 11/21/2006 2:43 AM (#1321)
Subject: should i??
I currently have a 265,000 1st and a 75,000 2nd my 1st is at 4.375 15yr and 2nd at 6.75 30yr-- I am interested ininvesting in real estate and am thinking of converting 1st and 2nd to new first in a interest only option type loan to free up cash with possibly an equity line for 100,000 my house value is around 650,000--just not sure if its a good idea or not --should i give up the 4.375 % loan --i dont know?-- lahabra ca 90631
Posted 11/22/2006 12:39 AM (#1322 - in reply to #1321)
Subject: RE: should i??
Posts: 92
Location: Las Vegas
Hello Dodge,

Looking at this from a numbers point of view and using what i would consider a "Good Case" scenario, I worked up some numbers for you to consider.

Using the numbers you provided I worked up the following totals of interest that you pay going various routes. It appears that you are currently paying in interest only payments on a monthly basis, $966 on your first mortgage and $422 on your second mortgage. These total to approx. $1388 in monthly interest expense for you.

If you... Scenario 1
Dont refi your first and only mess with your second mortgage the following happens:
1st mtg interest - 966
2nd mtg of $175,000 at 8.25% (This assumes you get a new equity line at prime) interest payment would be $1203.
Total monthly interest expense $2,169.
(This scenario assumes you want to use all 100k right away. If you dont need all the money up front, you can draw out only what you need for right now and save on your interest expense. This is the most flexible option for you.)

If you... Scenario 2
Refinance your existing 1st and 2nd mortgage together and take out an equity line for 100k, this is what happens:
1st mtg interest - $1770 (This assumes you get a new mortgage at 6.25%, which is pretty good but can be better or worse depending your individual loan setup.)
2nd mtg at 8.25% - $688
Total monthly interest expense $2458
(This only makes sense if you want to have the equity line set up right now but not actually use the money until some point in time not in the near future. Basically have the equity for 100k but have a 0 balance for awhile.)

If you... Scenario 3
Refinance your 1st and 2nd mtg and get 100k cashout all in 1 loan. You would have no 2nd mtg.
1st mtg interest - $2292
2nd mtg interest - $0.00
Total monthly interest expense $2292
(This is best if you are going to use all 100k right away and not expect to have the money in the near future to pay down your mortgage balance. Which I would think is likely, since why take out the money in the first place if you can gather enough to make a dent in your mortgage in the near future.)

So all that being said, If you can get an equity line at or very near the prime rate of 8.25% it really makes alot of sense to NOT touch your 1st mortgage and just get a new 2nd mortgage. If you are not able to get an equity line that cheap, then your best choice might be option 3.

If there is anything else pertinent to your situation that you want me to take into consideration, please feel free to let me know and I will see if it changes your options at all.

Hope it helps,

John I.
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