Mortgage reduction, have any of you done this?

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MVRCorp

MVRCorp

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Here's the offer I got from IndyMac/One West Bank. Current info is $180,000.00 on a 30 year loan (25 years left), 6.5%, payment is $1,275/mo (includes property tax and insurance). One late payment 12/1/11.

New offer
Immediately drop interest to 2% for the 1st 5 years. Moves to 3% the 6th year, then moves to 4% the 7th year, then moves to 4.75% and caps on the 8th year.
My bankruptcy 3 years ago doesn't matter, they said they don't even check my credit.
Current payment must be less than 31% of my gross income (second mortgage is excluded from calculation.
No doc. verbal phone intervue only. I tell them my income and expenses to calculate the 31%.

I asked if it changes the forecloser process if I miss or am late on a payment and they said no. They don't do anything till I miss my third payment (90 days).

If all this turns out to be true I can't see how I could go wrong. Do any of you have any thoughts, experience or advice?

Thanks, Jim
 
heres my understanding of why they want you to do this. bear with me I'm no wheres near an expert in this type of thing

well the thing is that what they will likely do is "pay off" your existing mortgage with the new one, when they do that you end up paying all the interest you would have payed over the 25 years all at once (get penalized) plus you end up paying the new mortgage interest.

For instance your mortgage is 180,000 but you now have it knocked down some. suppose your interest you would have paid on the 25 year balance was $15,000 (likely way more) with the new mortgage they get you for the 15,000 plus the 180,000 plus the new mortgage interest amount
 
MVRCorp said:
Here's the offer I got from IndyMac/One West Bank. Current info is $180,000.00 on a 30 year loan (25 years left), 6.5%, payment is $1,275/mo (includes property tax and insurance). One late payment 12/1/11.

New offer
Immediately drop interest to 2% for the 1st 5 years. Moves to 3% the 6th year, then moves to 4% the 7th year, then moves to 4.75% and caps on the 8th year.
My bankruptcy 3 years ago doesn't matter, they said they don't even check my credit.
Current payment must be less than 31% of my gross income (second mortgage is excluded from calculation.
No doc. verbal phone intervue only. I tell them my income and expenses to calculate the 31%.

I asked if it changes the forecloser process if I miss or am late on a payment and they said no. They don't do anything till I miss my third payment (90 days).

If all this turns out to be true I can't see how I could go wrong. Do any of you have any thoughts, experience or advice?

Thanks, Jim
Click to expand...


Tell them to send the offer details in writing so you can have your attorney to look over it. There use to be a loan the was written under the "Rule of 78". A Rule of 78 loan is where when you signed the original contract you paid a far bigger percentage on the interest before the principal. There is more to this that I want to try to explain in the forum. This practice was much stopped on any contract over 5 years in duration and everything was to be written under the "Simple Interest" loans. Some companies avoid this by writing the contracts where they renew automaticlly on a different tern. You need to check and see if your original contract was a "Rule of 78" contract and make sure the new contract isn't a "Rule of 78" since the terms change.

http://www.investopedia.com/terms/r/ruleof78.asp#axzz1jMkdUmn6

This is an expansion on the details on what 66plyValiant posted.
 
Where did the offer come from? A local bank? Or was it in the mail? I am always leery of offers unless a real person offers them, and then I think about the "if it sounds too good to be true" rule. Ask yourself how they benefit from this. If you are getting better rates and the fees and closing costs aren't crushing, and they are a reputable company, I would seriously consider it. But I would have someone with experience look over the contract first.
 
I would question phone call deals. If your wanting to refinance your bank will be more then happy to set down with you and go through your options. We did this several months ago.
 
I'm listening guys, keep it coming.

In answer to Mopar to ya the offer is from the original mortgage holder, Indymac/One West Bank.

I asked what their incentive is to offer this program to me without me even asking and they said they watch very closely for any sign of trouble paying.
They said their incentive is;
1. They don't want any more foreclosers. They would rather lower the interest rate and make a little money then foreclose on a house that's underwater, have to maintain it and then sell it at a loss.
2. They have to offer mortgage reduction in order to get government help and money.

Both of these make sense to me. I guess it's better to make a little money then loose money.
 
Look into the 15 year fixed rate loan. The payment is not much more and you get to own your home in half the time. In most mertgages the interest is front loaded where you pay that first before the principal. For the 15 year fixed there is less interest to be paid and you get to knock down the principal faster.

Beware of "adjustable rate mortgages" in some cases even when the rates go down that the fed charges the bank, they still increase your loan percentages - just because they can.

Stay with a "fixed rate" mortgage where they can't chage the rate on you.

You should reach the "break even" point within five years of the refinance where you would owe the same amount of principal. Then for the rest of your payments you knock down the principal much faster.
 
krazykuda said:
Look into the 15 year fixed rate loan. The payment is not much more and you get to own your home in half the time. In most mertgages the interest is front loaded where you pay that first before the principal. For the 15 year fixed there is less interest to be paid and you get to knock down the principal faster.

Beware of "adjustable rate mortgages" in some cases even when the rates go down that the fed charges the bank, they still increase your loan percentages - just because they can.

Stay with a "fixed rate" mortgage where they can't chage the rate on you.

You should reach the "break even" point within five years of the refinance where you would owe the same amount of principal. Then for the rest of your payments you knock down the principal much faster.
Click to expand...

Good words.
 
MVRCorp said:
I'm listening guys, keep it coming.

In answer to Mopar to ya the offer is from the original mortgage holder, Indymac/One West Bank.

I asked what their incentive is to offer this program to me without me even asking and they said they watch very closely for any sign of trouble paying.
They said their incentive is;
1. They don't want any more foreclosers. They would rather lower the interest rate and make a little money then foreclose on a house that's underwater, have to maintain it and then sell it at a loss.
2. They have to offer mortgage reduction in order to get government help and money.

Both of these make sense to me. I guess it's better to make a little money then loose money.
Click to expand...

Another hidden cost is PMI (Principal Mortgage Insurance) if you have less than 20% equity in your home so they can add costs resulting in costing you additional money and more interest.
http://www.frbsf.org/publications/consumer/pmi.html
If you paid PMI on the original loan you need to inquire about a refund if you refinance.

I never would take out credit life on any loan when. Why pay interest on life insurance that decreases in value as the time goes unless you are uninsurable. If I had a 15 year loan I bought a 15 year term life insurance policy that carried the whole value all the way through. If you had a $200,000 loan, bought credit life and died at the 14th year the loan would just be paid off. With term life your family would have the full $200,000 and after paying off the loan would have plenty of ready cash.
 
MVRCorp said:
I'm listening guys, keep it coming.

In answer to Mopar to ya the offer is from the original mortgage holder, Indymac/One West Bank.

I asked what their incentive is to offer this program to me without me even asking and they said they watch very closely for any sign of trouble paying.
They said their incentive is;
1. They don't want any more foreclosers. They would rather lower the interest rate and make a little money then foreclose on a house that's underwater, have to maintain it and then sell it at a loss.
2. They have to offer mortgage reduction in order to get government help and money.

Both of these make sense to me. I guess it's better to make a little money then loose money.
Click to expand...
Both of the incentives were what a lender told a buddy that went thru this. The lenders don't want any more foreclosured properties then what they already have. A friend in AZ just went thru this last fall, he called his lender & said help or I am walking. In some states there is a no recourse law. It basicly means that you can walk away from your home & other then the ding on your credit there is nothing that can be done, they cannot sue you for the difference of what they sell the house for vs what is owed.
 
zigs said:
Good words.
Click to expand...

Thanks. I heard about this back in the 90's and refi'ed my house with a 15 year fixed rate. It worked out much better. Not many "first timers" get this information.
 
15 year here, too. Definitely the way to go. I'd rather have less house, then be a slave for twice the time.
 
I am going to suggest looking at their offer, but first a couple questions.
1. You have been offered this because you may be upside down on the mortgage. How upside down are you?
2. What do you think the actual value of your home is today. Be reasonable and realistic here.
3. Are there refi costs? There may not be since you are not changing lenders.
4. Is there a prepayment penalty on your current mortgage? There shouldn't be, but I am not familiar with your bank.

Based on answers to the above, a couple reasons I might think about the offer.
1. Your interest rate immediately drops to 2% and stays level for 5 years. That in itself should be a substantial reduction in your payment>
2. It caps at 4.75% in year 8, still much better than what you now have.

Now a couple questions about the fine print in the new contract.
1. Is there a prepayment penalty?
2. Can you pay an additional amount which will be applied to principal each month?
3. Since there is some "government involvement", there is most likely some strings attached, what are they? Is there a recapture clause for any of the interest being written down?
4. Is there a minimum time that you must keep the mortgage? If the market were to turn around, or you move, can the mortgage be paid off or assumed if you sell the house?

Now a couple items:
Depending upon the answers to all the above. A 30 year loan has a fixed payment amount. By paying that half that monthly payment every two weeks will cut the time down to about 20-21 years.
If you can make the payment today, you refi with the lower payment, but continue to make that large payment that you are making today, you will damn near pay the loan in full by the time it caps.
I would be happy to answer any questions you might have either here or in a PM...
C
 
6.5% is not a terible rate. Mine is 6.25, and all the calculators I've used give me a terrible break even point when closing costs are factored in, even on a 4% new loan.

You are also going to convert what is basically a 25 year mortgage back into a 30 year one, right? If that's the case, you'll also start making payments that are more interest than principal all over again.

You need to know the closing costs, the term, the total of the payments, and the total finance charge.

You'll also need to determine what is more important to you- less total cash outlay, or lower monthly payments.

Lots of these types of deals are simply to get the up front costs, then again, 10K or so more interest to the bank is pretty attractive to them over 30 years as well.

I must admit, I've never heard of fixed incremental rate increases, other than the traditional ARM that can go up only x ammount in y number of years, such as 3/1, etc.
 
I am going to suggest looking at their offer, but first a couple questions.
1. You have been offered this because you may be upside down on the mortgage. How upside down are you? I don't think I am. In general they probably think I am because after I moved in I finished the basement and built a 450 FS deck, partially covered w/ a hot tub
2. What do you think the actual value of your home is today. Be reasonable and realistic here. Total owed w/second as of now $192,000 value in todays market probably 225K. The next door neighbors was in forecloser and they just sold theirs for 202K (unimproved but alot like mine)
3. Are there refi costs? There may not be since you are not changing lenders. They didn't mention any but of course that will be asked
4. Is there a prepayment penalty on your current mortgage? There shouldn't be, but I am not familiar with your bank. No

Based on answers to the above, a couple reasons I might think about the offer.
1. Your interest rate immediately drops to 2% and stays level for 5 years. That in itself should be a substantial reduction in your payment>
2. It caps at 4.75% in year 8, still much better than what you now have. Ya got those two right

Now a couple questions about the fine print in the new contract.
1. Is there a prepayment penalty? I'm checking but I don't think that's even legal any more
2. Can you pay an additional amount which will be applied to principal each month?
3. Since there is some "government involvement", there is most likely some strings attached, what are they? Is there a recapture clause for any of the interest being written down?
4. Is there a minimum time that you must keep the mortgage? If the market were to turn around, or you move, can the mortgage be paid off or assumed if you sell the house? 2,3 and 4 good questions I'll be asking

Now a couple items:
Depending upon the answers to all the above. A 30 year loan has a fixed payment amount. By paying that half that monthly payment every two weeks will cut the time down to about 20-21 years.
If you can make the payment today, you refi with the lower payment, but continue to make that large payment that you are making today, you will damn near pay the loan in full by the time it caps. Yep, I'm aware of the way to shorten the terms, I'll be checking on these too.
 
There is a fixed rate "yourgage" touted locally. Basically you turn whatever pre existing variable loan time left into a fixed rate at 4.x%. I think its a no cost, ie they pay the fees to get your business. That sounds pretty good to me as this economy has to turn pretty soon (Im thinking November 6, 2012???) and that means rates will start to rise.. I hate this stuff as I know nothing about the details...
 
Best option.... (If I understand your situation correctly).

You are not upside down.
You are having difficulty with the payments.

Sell the house and buy something you can afford.
 
Quote"Depending upon the answers to all the above. A 30 year loan has a fixed payment amount. By paying that half that monthly payment every two weeks will cut the time down to about 20-21 years.
If you can make the payment today, you refi with the lower payment, but continue to make that large payment that you are making today, you will damn near pay the loan in full by the time it caps." End quote . Are you saying to pay 1.5 payments a month will make the difference or just paying bi weekly?.
 
I just refinanced this week 3.5% 15 year fixed. Would have been 3.25% but we have a duplex. I was trying to get some cash out to supplement my savings for our garage expansion project. Well the appraisal on my house went down over 80K from last year. So in order to keep the loan to value ratio over 75% I wasn't able to borrow as much as i wanted. The improvements that we have done over the last few years were not even taken into consideration. To top it all off the comps they used for the appraisal were older smaller and had no land, (one was a short sale).

It did work out o/k, my payment went down a few hundred and I got most of the $ I wanted. I was surprised how much property values went down this year.

I would go 10 or 15 year fixed with a credit union or local bank, if you can swing it.
 
!!!!! this exact description- 2% or eliminate- is on TV right now (Clark Howard).

SCAM!
 
I just got a call to lower my house payment today from Citibank. I was told that could cut my interest and my payment. Yes, at one time I had Citibank but that was paid off in 1998 when I moved to a local bank. Now here is the funny part... I owe nothing on my home or any real estate so how can they lower my interest and payment? This one is a SCAM deluxe.
 
DD - Are you saying to pay 1.5 payments a month will make the difference or just paying bi weekly?.

daredevil, Bi weekly. If your payment is $1,000/mo. you pay $500 every two weeks. The effect of this is that you will pay one extra payment per year which cuts the principal balance quicker.

An alternative that I used myself, was to print a copy of the amortization schedule (AS) and use it to your advantage. Let us assume that you have just started your home mortgage, with P+I payments of $1,000 monthly for 30 years. You look at the AS and find that your first payment is divided up to $990 interest and $10 principal. The next months payment is $989.50 interest and $10.50 principal. What I did for several years was send this months payment along with next months principal payment. The effect was that I made two months worth of payments for the total of $1,010.50! Don't get ahead of me, that $10.50 "extra payment" was actually coming off the tail end. You would not be able to miss a payment and convince the lender that "I paid an extra $10 last month, so I shouldn't have to pay this mo...."

If you have other questions, please ask. It's your money, you should get the very most from it that you can. There's a lot of scams out there too, so you have to be careful.
C
 
Yes. we did it long before the country had issues, though.

The wife and I bought this house in 1988. We put $20K down, and our 30 years fixed mortgage was set a $742.00 a month. In 1992 we refinanced, and changed from a 30 years fixed to a 15 year fixed (with a much lower rate). Our payments went up to $746.00 a month, but we lopped off 11 years of payments!

The 15 year mortgage saved us $97,944.00 over the 30 year fixed!!!!!!

$742.00 x 12 months = $8904.00 per year x 11 years = $97,944.00 in savings!

The house was paid off in 2007. :thumbup:
 
Most bank or credit union websites have mortgage calculators.

Most let you add in an extra payment to the principal and re-run the calculation.

That way you can see what effect that ammount of additional payment has.
(reduction in term and reduction in total finance charge)

You can play around with different ammounts until you find the one that's comfortable and effective.

I've been putting $50 extra a month towards mine. It's about the equivalent of one extra payment a year, and should take about 6 years off the loan.

The thing about NOT refinancing, is that there are no closing costs, and I am not locked into a higher payment. If something unforseen happens, I can use that $50 each month if I have to. If more cash gets freed up per month, and I determine it's most cost effective use is to pay down the mortgage, then I'll up the additional payment ammount.
 
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