Cashing out some equity

[Shel77]

What is the name of your state? Florida

I have a quick question my husband and I decided to take about 10k out of our over 60k in equity, he has been doing all the work on this and today he tells me that everything is set up for us to do this next week; So, what they (the mortage co.) are going to do is cut us a check for the full amount (60k) the we will imm. pay back the amount that we dont want the 50k. I was under the impression that we were going to have a line of credit with them to get out as much of our equity as we wanted but why is it being done this way why do they have to give us the full amount and then us give back the unwanted portion is this in our best interist or does it really even matter weather it is done like this or if they just approve us for the 60k and we only take 10k. Sorry if this is a stupid question I was just confused and the only anwser I got from HD was this is how they need to do it. Thanks

 

[Caterina82]

This is not a stupid question at all. I'm concerned the set up of this loan may be, however. I'll probably have a multitude of questions, but first off:

Is this a first or second mortgage?

 

[Shel77]

It's a second, I was under the impression that geting some equity was called a "home equity loan" and was different than a second mortage hawever HD just said last night that we will be closing sometime next week, so I asked if we are closing does that mean we are paying 'closing costs' he said yes about 2k.

 

[Shel77]

Well I say second but just to make sure, the first one would be when we first purchased our home about 9 monthes ago right?

 

[MORTGAGEman]

The truth is that in order for the Loan officer to get paid the full amount, they have to dispurse all of the credit limit. They figure they did all of the work and at least want to get paid on it. If you only dispursed the $10,000 limit that's all that they would get paid on, a percentage of whatever you dispursed.


But who knows, this is just my interpretation being in the mortgage business.

 

[Caterina82]

What MortgageMan stated was one of my concerns. In other words, you're paying closing costs associated with a loan that is 6 times the amount you want to borrow. This does not necessarily equal 6 times the cost, however your loan officer/broker is not working in your best interest in this deal, but his/hers. It may be a good idea to ask some very pointed questions, and if you don't like the response, keep shopping.

Since you purchased only 9 months ago, you might even talk with the company who has your first mortgage.

 

[Shel77]

I should have never let him handle this in the first place I will give her a call tomorrow and tell her we only want to do 10k, We talked to our current lender and they want us to make 1 years worth of mortage payments prior to getting a loan with them, I know it's only 3 more monthes by by then we could have all the home improvements done. Thanks so much for your advice, any suggestions as to other questions we should ask? We had a very good friend thats a RE agent help us with this the first time around so I have no clue, I do know however how to get the best possible house built, LOL!

 

[efflandt]

2k to borrow $10k is a lot of money up front (25% of the $8k net gain). I don't know your credit situation, but teaser checks from credit card companies have a lower balance transfer rate than that (3%, possibly with upper limit making it less) if you can get a decent interest rate (and have no balance at higher rate). For example I used one with balance transfer fee limited to $50 for $3500 at 2.99% interest for unlimited period, although, their current offers are 4.99% unlimited (1.99% for limited term).

Otherwise bank or loan related web sites have an explaination about the difference between Home Equity Loan (HEL) and Home Equity Line of Credit (HELOC).

I do not find much info about HELOC with "fixed rate option" that I used to refinace my existing mortgage with a related bank branch for lower interest and shorter terms. Since they already had appraisal, etc. from 3 years ago, closing costs totalled only $170. I did not take cash out, but can borrow against paid off prinicpal in the future at less than prime rate by simply writing a check. Some even include closing costs, but at a higher interest rate.

Instant gratification vs. waiting until you qualify for something better will cost you.

 

[enricosuave]

Sounds to me, from what you said, like this mortgage company is relying more on making a bigger commission for themselves based on tactics rather than simply giving you what you asked for.. a 10k equity check.

Doing what they are doing is costing you more money and, as I'm sure they hope, once you have that 60k check in hand they're hoping you'll run off and spend it.. thus owing them a greater interest profit over the long run. Getting a HELOC (Home Equity Line of Credit) would have been much better, in my opinion.

If you still have time, put the brakes on it and start over with someone else. If you've signed and the check is already in your mailbox.. pay that 50k back immediately and consider sending a harsh letter of dissatisfaction to their mortgage company President regarding how you felt mislead from what you originally asked for. By some chance it may put that local office on notice to make ammends. (unless that's their corporate tactic from top to bottom)

 

[Shel77]

I have called them, I said that we only wish to take ok 20k now, they were not too happy and asked again if we were sure. Anyhow apparently when they pulled our home for appraisal it only came up with the purchase price so now today I have to call and get someone to come give us an appraisal and pay for it ourselves, which is going to cost around 300.00 then we have closing costs that they are not sure of now, I wonder how much less it will be vs. when we were doing the 60k. We had one done (app) prior to closing 9 mnths ago and it came back with 40k in equity and they say we can't use it since it's over 6 mths old, I am really not happy with this process but I have heard that everyone takes a few 3-4 weeks to get this all doneso starting over now that we are into this nearly a month doesn't sound like fun.

 

[ResponsibleOne]

I am not in this that industry but I am in finance, if you only need the $10k I would not take anything over that amount and this is the reason why..........your repayment amount is going to be based upon how much you currently owe plus the additional amount you take out.

Even if you put the cash back in immediately, your mortgage payment per month will not change based upon that increase in equity, it will be based upon how much you owed when the contract was signed. Why pay a higher payment towards interest when you do not have to?

Think about it if you only took out a $60,000 loan at 6% interest for 30 years your payment would be about $360 per month. But, if you only took out the $10,000 at the same interest rate and for the same period your payment would be $60 bucks per month. The only way you could get your payment to adjust was to refinance and start the process and the fee's all over.

Just a thought!