Mortgage Rates Skyrocketing

[Gap Spanner]

I have a nephew in North Carolina who purchased a home 5 years ago. He got a decent rate of 6.5% and the home has increased moderately in value. It's nothing special, just a simple three-bedroom home on about a fifth of an acre, well out from 'town.'

This hurricane season dumped a lot more rain on him than the last few years and he found a few problems with the drainage and the roof. Well, he needed to fix these things, they're necessities, not luxuries. A good, dry basement and a weather-tight roof are kind of necessary.

So, having a bit more than $20K equity and an excellent credit score, he went to his lender two weeks ago and asked for $18K on a refinance ($8K for consolidation of bills, $10K for needed repair and upgrade work to his home, thereby increasing it's value).

Here's what they offered him yesterday:

- 12+%
- Mortgage payment increase of $300/month
- 30-year term

So, for someone with excellent credit, a perfect payment record in all areas of his finances for the 5 years he's had this mortgage and a favorable debt-to-income ratio - and this person is asked to double their interest rate, refinance to another 30-year loan and end up paying back ($300 x 360 months) $108,000.00 for a $10,000.00 loan.

So not only do these predatory lenders want $700 Billion in tax-payer loot, but they're going to suck even more out of the tax-payer directly.

I'm waiting for the inevitable ransom demand - give us the $700 Billion or we keep putting the screws to the public. They're paying us, one way or another.

[flvegan]

1. HELOC's and the like often have higher interest.

Particularly since they aren't first in lien priority, so there's a great deal more risk.

Welcome to DU, btw!

[Warpy]

2. My guess is that it's the debt consolidation that's killing him.

What he really needs to do is bite the bullet and pay that stuff off ASAP. If he doesn't need to take nearly all the equity out of the house, he'll get a more favorable rate.

Remember, repayment is only one part of what lenders look at. If he's got $8000 in high interest debt, that's a red flag.

He might be able to get a better deal elsewhere, but I doubt it. His best bet would be to do minimal repairs and then concentrate on paying down that $8000 while he waits for banks to stop playing hardball.

This is just the worst time in the world to go looking for a loan. Nobody is going to get a decent rate.

[Selatius]

3. Do us a favor and post the name of this particular banking institution so we can look at their ratin

I want to see what kind of financial health this banking institution is on www.bankrate.com.

[dipsydoodle]

4. So don't do it.

What's the issue ? It's the aggregate effects of refinancing which has caused this current heap of shit one way or another. The $8k for consolidation of bills is just another way of saying he'd made the mistake of spending his house.
The $10k for repairs may be better on an individual loan.

[Godhumor]

5. Refinancing is not the same as a new mortgage

Also, if he has never used it, have him check out www.bankrate.com for daily rates.

[Lex]

9. Refinancing is a new mortgage with a new loan amount and new terms.

nt

[Godhumor]

10. Refinancing rates are different from a straight up new fixed rate mortgage

Refinancing, as you've noted, also leads to the secession of the first mortgage, a new 30-year or 20-year ending point, and a new monthly rate. It is still not the same as simply asking for a new mortgage, which was my concern with the OP's subject.

[Hassin Bin Sober]

6. The loan request you are describing would have been tough BEFORE the meltdown......

Now it is next to impossible - hence the terrible rate.

"Cash-out" refinances were next to impossible over 90% loan to value before the meltdown. What you are describing is a cash-out loan close to 100% loan to value......I'm surprised he received ANY offer at all.

In the "old old" days, one could pay-off credit card debt incurred by rehabbing a house if one could "prove" the debts were incurred by the renovations - that ship sailed 5 years ago (due to shady customers and lenders doctoring contractor receipts). Now any new mortgage loan funds used to pay off anything other than the first mortgage amount is considered cash-out.

[trof]

8. You got it. n/t

[ThomWV]

7. When there is very little money to lend rates go up. Its not rocket science.