Is refinancing a good idea??
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| Tue, 02-07-2006 - 1:09pm |
I am amazed that we got approved for a re-fi in the first place, since our bankruptcy was only discharged a few months ago. However, there is a catch... we have to do their debt-free plan. Which is great!, but I'm a bit skeptical if it makes sense for us to do.
We could probably get 25K out of the house. They would require us to use that to pay off certain things (which is part of our plan too), taxes mostly. And getting rid of those things will leave us with more money out of the month to buy the second car we NEED (the guy H carpools with will lose his job next week), and have more cash to put away for our adoption fund.
Also part of their plan for us is depositing 6 months worth of mortgage payments into an account that will automatically pay the mortgage payment each month... AND we will still pay it each month too (thereby making 2 payments a month for 6 months, and improving our credit score). This sounds good, but maybe it's a bit too ambitious?
The big catch... the top reason for re-fi-ing was to bring down our interest, which has risen a few times the last year. This will bring it slightly UP, at a fixed rate for 2 years. The idea is that we will be saving the interest/fees from the things we're paying off, and improving our credit in the next two years so we can get a better rate when the 2 years is over.
I'm torn...it sounds like a good plan. But we started this with the intention of looking for a lower rate. I kinda feel like maybe we're making an immature descision, taking the easy way we would have earlier in our marriage. Any chance one of you money savy ladies could guide me??

Hey tyco - please know that I'm typing here purely on gut instict, not knowing anything about the company you're dealing with.
All my best,
Danni
ITA with Danni. This sounds like a company trying to take advantage of you. The red flag that I first saw was that you have to agree to their plan in order to get their loan. I don't think a legit company would require this.
Good luck and let us know what you decide to do.
Kellie
Does that 25K include any of the closing costs of the refi? Closing costs can take a good chunk out of refi money.
I did a refi last year, paid off debt and have added more debt. Sometimes you need to improve your spending habits before using a refi to help with debt.
Also I have heard you need to be weary of the ones that do offer the loan so soon after a BK. Often the comapnies lending the money are a finance company over a bank. Banks have far more strenuous measures to approve loans than a finance company. A finance company will lend money at much higher rates. Loans though get sold all the time from lender to lender, but just be weary of what is being offered to you.
I would speak only to a person who you know and can trust when it comes to this. A refi would raise the cost of mortgage payment, so you need to see if it really is cost-effective. It only is if you make no new debt.
Taxes. I would arrange a payment plan with the IRS. I understand it can be done, and would be more advantageous to you.
Just my 10 cents worth.
Thanks for all of your insights.
Is it a reputable lender? Dunno exactly. My husband's company does some financial councelling, and one of their programs is to find ways for clients to invest, which is the department he approached to see if it were possible for us to refi. So, I wasn't skeptical... but I've gotten those dozens and dozens of car deals, credit deals, and mortgage offers that came within minutes of filing... and it didn't occur to me that this may fall into that category!
H totally wants to do this, mostly because you just can't relax knowing the IRS is after you; and because we can't prove that SOME of it is a mistake until we can pay off the CPA ($2500? which we are having trouble paying because the bill is almost the same as the lawyers...how can we prioritize??).
I'm pretty sure this is what we're going to do...H is so gungHo on it... We have talked about why it may not be a good idea, but if I strenuously disagree it will cause a fight. I want to know it's worth it!
And I think the closing cost will be minimal. What is too much??
I wouldn't let your H browbeat you to do something that seems a quick and easy fix until you have investigated everything. Maybe you don't need to pull the whole amount out. I know you trust the company your H works for, but I just think of Enron and then I see why you can't trust anyone even those who you work for.
There is a lawsuit being settled by Ameriquest Mortgage Company. I have included the article link:
http://www.miami.com/mld/miamiherald/living/home/13786813.htm
The most interesting part of the article was the first part:
"Ameriquest has reached a settlement over alleged abuses that constitute a virtual how-to manual for mistreating customers.
BY KENNETH HARNEYkenharney@earthlink.net
Did your loan officer sit you down and walk you through all the key operational details of your most recent mortgage before you signed on the dotted line?
Did you see a copy of the appraisal and have a chance to review it carefully?
Did you understand when -- if ever -- a prepayment penalty might take effect to discourage you from refinancing? Or was that whole subject left a little fuzzy?
Did you receive a copy of your loan and settlement cost good faith estimates (GFEs) within three business days of application?
These may sound like the most basic of questions, and you may well answer: Duh! Of course I understood everything I needed to, and yes, my loan officer was an absolute font of useful information..."
You need to make sure you do understand if there are any points and penalties, see if there is any penalty for early payment on your existing mortgage. This is another fantastic link about refinancing. It really
http://www.finance.cch.com/text/c20s15d660.asp
I wish I had taken a closer look at this link. I have a 0.5 point on my mortgage. I didn't have it on my original first mortgage. I am learning while answering your question.
Maybe a PT job would be better to help pay off the CPA. I would really sit down and devise a list of things that need to be investigated before the refi decision is made. I would present these to your H, and once you have answered those questions to your full satisfaction would I consider the refi.
You could take on more problems if you don't take the time to look at things carefully then just getting excited because a company said yes to the refi.
Beach
Once again ITA with the pp. Don't let your H force you into something you don't feel comfortable with, just to avoid an argument. Women have this thing called gut instinct. It has saved DH and I more times than I care to think about. The first time I really listened to it, we were about to sign the papers to get DH a new SUV that would have raised our car payments $100/month. Yeah we could afford it, but something told me to run. We did. And, we got home and found that because of an increase in taxes our mortgage payment went up $100/month. DH was very grateful he listened to MY gut instinct and didn't do something.
In short, listen to your gut. If you don't feel comfortable doing it, then DON'T.
HTH,
Kellie
BTW, I have yet to find a man whose gut instincts are as strong as ours.