Lending rate question
 

I am buying a house 70/25/5 with a 25% HELOC that is >100K. Credit is excellent, income easily supports the purchase, full doc, first is a 15-year fixed. They offered 7.25% fixed "5-year" or prime minus one-half on the HELOC. Is that a decent rate? If so, which one is better?

Thanks.

Re: Lending rate question
 

matt im a bit of a newb when it comes to mortgages. Would you mind explaining what all those terms (70/25/5, HELOC) are?

Re: Lending rate question
 

70% on the principle mortgage, 25% on the 2nd (HELOC in this case, Home Equity Line Of Credit), and 5% down payment.

Re: Lending rate question
 

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I am buying a house 70/25/5 with a 25% HELOC that is >100K. Credit is excellent, income easily supports the purchase, full doc, first is a 15-year fixed. They offered 7.25% fixed "5-year" or prime minus one-half on the HELOC. Is that a decent rate? If so, which one is better?

Thanks.

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They're offering prime minus one-half? You must have very good credit. That's a good deal, as long as there are no big hidden fees. Also, that might be an introductory or teaser rate, that goes up after 6 months or a year. Be sure to check, but if there's no catch, it's a great rate.

The 7.25% may be even better. Prime is currently 8.25%. What does it go to after the 5 years are up? Do you expect to borrow the full 25% immediately, and how long until you pay it off?

Re: Lending rate question
 

[ QUOTE ]

I am buying a house 70/25/5 with a 25% HELOC that is >100K. Credit is excellent, income easily supports the purchase, full doc, first is a 15-year fixed. They offered 7.25% fixed "5-year" or prime minus one-half on the HELOC. Is that a decent rate? If so, which one is better?

Thanks.


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Lots of question to be answered.

How long do you plan on keeping the house?
Will you be paying off the 2nd early?
Do you need a line of credit for other reasons?
How would a jump in rate affect your ability to pay?
What would the rate be on an 80/15/5?
How much cash are you left with after closing?
What are the cost to close these loans?
Just a few questions like that....

Who is giving you advise?
If you have excellent credit you should have plenty of choices?
What rate are you getting on the first lien?

Re: Lending rate question
 

Matt, 7.25% seems like a good deal on your HELOC, yes.

As to which one to take, depends if you think the rates are going up or down.

Re: Lending rate question
 

take the 7.25% rate.....prime would have to go down by over half percent for the other to be a better deal....if this does happen down the road it would mean that mortgage rates are lower and therefore you would refinance everything

Re: Lending rate question
 

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take the 7.25% rate.....prime would have to go down by over half percent for the other to be a better deal....if this does happen down the road it would mean that mortgage rates are lower and therefore you would refinance everything

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good point.

Re: Lending rate question
 

[ QUOTE ]
I am buying a house 70/25/5 with a 25% HELOC that is >100K. Credit is excellent, income easily supports the purchase, full doc, first is a 15-year fixed. They offered 7.25% fixed "5-year" or prime minus one-half on the HELOC. Is that a decent rate? If so, which one is better?

Thanks.

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Both are good rates since you don't have much equity. (LTV>90%)

Re: Lending rate question
 

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[ QUOTE ]
I am buying a house 70/25/5 with a 25% HELOC that is >100K. Credit is excellent, income easily supports the purchase, full doc, first is a 15-year fixed. They offered 7.25% fixed "5-year" or prime minus one-half on the HELOC. Is that a decent rate? If so, which one is better?

Thanks.

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Both are good rates since you don't have much equity. (LTV>90%)

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Once I sell my current house, I'll have about 35% equity in the new home. What rate drop comes with <90% LTV? Is there another threshold below that at <80% or similar?

Re: Lending rate question
 

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[ QUOTE ]
I am buying a house 70/25/5 with a 25% HELOC that is >100K. Credit is excellent, income easily supports the purchase, full doc, first is a 15-year fixed. They offered 7.25% fixed "5-year" or prime minus one-half on the HELOC. Is that a decent rate? If so, which one is better?

Thanks.

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Both are good rates since you don't have much equity. (LTV>90%)

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Once I sell my current house, I'll have about 35% equity in the new home. What rate drop comes with <90% LTV? Is there another threshold below that at <80% or similar?

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Is there any particular reason you are doing a 70/25 instead of an 80/15? Is your 1st really big ($1.5m+)? Are you planning on paying off the 2nd pretty quickly and there is a better rate on the 1st at 70% LTV? Those are pretty much the only reasons I can think of.

Also, the rate on the 1st on a 15 year fixed should be south of 6% w/ your credit/income profile...if it's not, pm me.

Re: Lending rate question
 

The lower the LTV the lower the rate should be.

If you are going to stay in the house for a long time it would be better to lock more money in a low rate first lien for 30 years. Then you have a smaller 2nd lien that you can eaiser pay off early if ARM rates go too high.

Like I said early on, I would need alot more information about your and your situation to come up with the best combination of loan products.

Getting a low rate is not the end of the story.

It makes me laugh when someone says "XYZ is giving me 6%". They are not GIVING you Sh!t! They are charging fees / points somewhere along the way!!! Thats why I was asking how much is it costing to close these loans. Compare GFE's, look at the APR's. You may save yourself a few grand right out of the box.

Re: Lending rate question
 

Matt,

I don't know if this will apply to your situation or not, but I had several friends do the following....

They obtained the best primary mortgage that they could get, and just took whatever HELOC the broker pushed on them. Then immediately after buying the home, they were able to walk into a bank and get a much better rate on a HELOC. The banks were able to give them a better interest rate and there were no fees to obtain the loan. They used that to pay off the initial HELOC.

In short, get the best primary mortgage you can, then refi the HELOC portion later to save some money.

Re: Lending rate question
 

[ QUOTE ]
Matt,

I don't know if this will apply to your situation or not, but I had several friends do the following....

They obtained the best primary mortgage that they could get, and just took whatever HELOC the broker pushed on them. Then immediately after buying the home, they were able to walk into a bank and get a much better rate on a HELOC. The banks were able to give them a better interest rate and there were no fees to obtain the loan. They used that to pay off the initial HELOC.

In short, get the best primary mortgage you can, then refi the HELOC portion later to save some money.

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there is no reason that a broker can't get just as good a HELOC as any local bank you walk into. Plus, at 95%, most community banks won't touch it at prime minus .50%.

Also, 30 year fixed 2nds have been priced better than HELOCs for the past year or so. F/D, 95% CLTV w/ good credit, $100k plus, should be in the low to mid 7's.

Re: Lending rate question
 

[ QUOTE ]
They obtained the best primary mortgage that they could get, and just took whatever HELOC the broker pushed on them. Then immediately after buying the home, they were able to walk into a bank and get a much better rate on a HELOC. The banks were able to give them a better interest rate and there were no fees to obtain the loan.

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Getting a loan and or refinancing any loan is NOT free. If the fees are not listed on the HUD the bank or broker made money from premium pricing.

Right now rates are low. Shop around and get the best deals you can. Refinancing makes sense only when you can get a good pay back. Example: The total cost added back into your loan is $4000 and your payments go down $200 a month. In 20 months you have recaptured your cost. Keep in mind you don't want to start over with a 30 year mortgage if you have already paid for 15 years.

Re: Lending rate question
 

This is really educational. Thanks all for the responses so far.


To answer some of the questions:

Immediately after selling my current home the HELOC will get paid off. The large HELOC serves as an immediate cash reserve for investments. (My brother does land development, and some investments we make require immediate cash. That's why we went with the 70% first mortgage.)

The 5% down is merely because coming up with that much cash without selling my house and without making a large paper deposit would be annoying. I would have to borrow it at prime through my business. It's psychological - just bothers the hell out of me to borrow from my business. If the price were right I could make it anything up to 25% down.

The 6% first is zero points, so about $2,300 to close including appraisal, lawyer, taxes, county and state fees, and mortgage borker vig, which is about $1,000. I can also get 5 and 5/8 for one point. I plan to pay that mortgage off in 5-7 years and then convert to a mega-HELOC for investment purposes. So when you say I can get the loan cheaper, how much cheaper?

Re: Lending rate question
 

[ QUOTE ]
This is really educational. Thanks all for the responses so far.


To answer some of the questions:

Immediately after selling my current home the HELOC will get paid off. The large HELOC serves as an immediate cash reserve for investments. (My brother does land development, and some investments we make require immediate cash. That's why we went with the 70% first mortgage.)

The 5% down is merely because coming up with that much cash without selling my house and without making a large paper deposit would be annoying. I would have to borrow it at prime through my business. It's psychological - just bothers the hell out of me to borrow from my business. If the price were right I could make it anything up to 25% down.

The 6% first is zero points, so about $2,300 to close including appraisal, lawyer, taxes, county and state fees, and mortgage borker vig, which is about $1,000. I can also get 5 and 5/8 for one point. I plan to pay that mortgage off in 5-7 years and then convert to a mega-HELOC for investment purposes. So when you say I can get the loan cheaper, how much cheaper?

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looks like you are good. That's a good rate for no origination fee...looks like you are working with a pretty good broker.

Re: Lending rate question
 

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The 6% first is zero points, so about $2,300 to close including appraisal, lawyer, taxes, county and state fees, and mortgage borker vig, which is about $1,000. I can also get 5 and 5/8 for one point. I plan to pay that mortgage off in 5-7 years and then convert to a mega-HELOC for investment purposes. So when you say I can get the loan cheaper, how much cheaper?

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If this is the deal you have set up, it's better than what 90% of borrowers accept.

Your broker is making what I would consider an honest yeild spread on the back end in addition to the $1,000. The buy down is not a bad deal if you were going to keep the loan for a few years. If you are into outside investments don't pay off the low rate first. It's hard to find cleaper money anywhere else.

Re: Lending rate question
 

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The 6% first is zero points, so about $2,300 to close including appraisal, lawyer, taxes, county and state fees, and mortgage borker vig, which is about $1,000. I can also get 5 and 5/8 for one point. I plan to pay that mortgage off in 5-7 years and then convert to a mega-HELOC for investment purposes. So when you say I can get the loan cheaper, how much cheaper?

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If this is the deal you have set up, it's better than what 90% of borrowers accept.

Your broker is making what I would consider an honest yeild spread on the back end in addition to the $1,000. The buy down is not a bad deal if you were going to keep the loan for a few years. If you are into outside investments don't pay off the low rate first. It's hard to find cleaper money anywhere else.

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yeah, the broker is probably making around .50% yield spread from the lender. That's pretty fair.