Refinance or Home Equity Loan?

[Gail]

We have a small adjustable mortgage balance that will be adjusting in October. For tax reasons, we don't want to withdraw enough money to pay it off at this time, and so we've been looking at possible refinancing options.

Pen Fed is offering a HE Loan at 5.99% fixed for 20 years. That rate is very competitive with what we're seeing in the refinance market.

Is there any reason not to use the HE loan instead of a conventional mortgage? We will probably pay the mortgage off early if we can avoid the tax bills for taking money from our retirement funds.

 

[brewer12345]

Sounds OK to me, so long as the fine print on the HE loan works for you. Any origination costs, or does Pen Fed eat those?

 

[Gail]

There are no points, and no closing costs. So far, I can't see a downside.

 

[FinanceDude]

There are no points, and no closing costs. So far, I can't see a downside.

Neither do I. I say go for it.

 

[jazz4cash]

Last month, we closed on the 5.99 fixed rate HE loan at PenFed. Closing cost was zero, zip, zilch, nada! They waived the appraisal based on an automated appraisal. We did everything online,by phone and FedEx. Very easy, very good customer support......not bad considering they're paying us 6.25 for the funds we have on deposit with them. I would be very curious to know if anyone can beat this fixed rate on a 20 yr loan. Im talking about the truth-in-lending rate, not just the advertised rate.

 

[FinanceDude]

Last month, we closed on the 5.99 fixed rate HE loan at PenFed. Closing cost was zero, zip, zilch, nada! They waived the appraisal based on an automated appraisal. We did everything online,by phone and FedEx. Very easy, very good customer support......not bad considering they're paying us 6.25 for the funds we have on deposit with them. I would be very curious to know if anyone can beat this fixed rate on a 20 yr loan. Im talking about the truth-in-lending rate, not just the advertised rate.

Doubt it. Sometimes I wish I had taken up on CITI's offer when they were being stupid. I could have gotten a 20-year HELOC for 3.99 fixed with no closing costs.......

 

[jazz4cash]

Doubt it. Sometimes I wish I had taken up on CITI's offer when they were being stupid. I could have gotten a 20-year HELOC for 3.99 fixed with no closing costs.......

A fixed HELOC that is stupid for the bank. I think a blended rate HELOC would be a reasonable compromise, but Ive never seen anything like that.

 

[Gail]

Last month, we closed on the 5.99 fixed rate HE loan at PenFed. Closing cost was zero, zip, zilch, nada! They waived the appraisal based on an automated appraisal. We did everything online,by phone and FedEx. Very easy, very good customer support......not bad considering they're paying us 6.25 for the funds we have on deposit with them.

Thanks for sharing your experience. We have money deposited with them, too, and we've been very pleased. It's good to know that there is nothing that I am missing in the HE loan.

 

[walkinwood]

Gail,
For my benefit, what is the disadvantage of going with a refinance v/s HE - say a 15 yr mortgage on the balance?

Also if the amount is small, wouldn't a shorter loan term be better than a 20 yr one?

I must be missing something.
ww.

 

[Gail]

We save closing costs, etc on a refinance. Also, we haven't been able to find a 15 year rate that is lower than this HELoan.

We will probably pay the loan off early, so we don't really care about the time frame. We are just looking for the best refinancing deal.

 

[Eyerishgold]

There's only one disadvantage I can see. With a HE Loan there's no escrow account so you have to be disciplined enough to set aside money monthly for your taxes and insurance. As long as you can do this you'll be better off with the HE Loan.

Also, generally speaking, the closing costs are MUCH lower with a HE Loan.

 

[EngineeringMyFinances]

A couple of years before retiring my mortgage I looked at a HE loan thinking I could get a lower rate without the expense of closing costs.

But I looked at the fine print and saw a penalty for early payment, so I just kept my mortgage and paid ahead on it.

 

[jazz4cash]

All the HE loans and lines Ive looked at lately do have the prepayment penalty, but its usually just that they charge back for the closing costs that were waived if you pay off the loan/line within 2 yrs......after that no penalty.