In our mail today, we received two very attractive offers to refinance our current mortgage. Wow, how [photopress:MPj03876060000_1_.jpg,thumb,alignright]exciting! Here are the details:
Offer One–This is your “Final Notice”
Reducing our current mortgage rate to 1.75% for 5 years. A Senior Rate Reduction Consultant is waiting to assist you. The APR on this offer is 6.308%.
This offer will expire on May 14, 2007. Here’s my favorite part: No other notices will be issued and no representatives will call you. (Darn…the clock is ticking!)
Offer Two…Takes the Cake! (It’s even printed on pink paper)
“Your Mortgage Master loan in the amount of $375,000 can be restructured to a (you better sit down for this one) a 10 year payment at only $79. This is not a typographacial error. Your payment rate is only 1/4% and is fixed for 10 years….
Call us today and have no house payments until June 2008“.
Of course I had to call them! The gentleman was very friendly (much nicer than the chaps I dealt with trying to help Jillayne uncover the Vacation Mortgage). First you must meet their guidelines. “Slick” tells me that one of their biggest “catches” to get around is loan to value…lucky for me, we meet the 70% or less LTV requirement. You also must have credit scores of 680 or better and not plan on moving for 3 years or you’ll have the opportunity to pay a prepayment penalty.
Me: What is the rate based on?
Slick: 0.25% interest only
Me: I mean, what is the base rate? How much is the deferred interest?
Slick: Wow, you seem to know a lot! 6.750%
Me: At what point does the mortgage recast?
Slick: 150% (yep…that’s what he said….150%). I can’t believe it either!
This means that every month you make the 0.25% interest only payment of $79; the difference between that and the fully amortized payment is tacked on to the back of your loan. This difference is $2,322.17.
This would be allowed to continue until my original mortgage balance of $375,000 reaches $562,500! I estimate this would take 80 months (or just shy of 7 years). Although the rate is fixed for 10 years, the loan will recast into a fully amortized mortgage when it reaches the 150% cap.
If we assume that my house is worth $550,000 today and has a mortgage balance of $375,000. In 7 years, we know that if I did this refinance with Slick, my mortgage balance would be $562,500. We really have no guarantees on what my $550,000 home will be worth in 7 years. Not to mention what would happen to my credit scores having a mortgage balance that was increasing over the original loan balance.
Last but not least…we’ve finally uncovered the “vacation mortgage” mystery! With this program, they also offer to give you 12 months off of your mortgage payment as a “credit”. It’s very easy for this type of lender to do. At $79 a month, 12 months of mortgage payments would be $948. It’s simply priced into the loan by rebate, margins or the prepayment penalty.