Q: My husband and I have two kinds of loans on our house.
The first is interest-only with a 6.25 percent interest rate, and the loan amount is $286,000. It will be adjusted in five years, which will be some time this spring.
The second loan carries an interest rate of 8.375 percent, with a principal balance now of $151,603. We are paying $110 in principal and $1,061 in interest monthly. It has the same five-year adjustable-rate life and started the same time when we bought our house for $440,000.
Both of us have good credit. Is it possible for us to get a fixed-rate 30-year loan with a lower interest rate combining the two loans? If so, when should we do this and what should we do? By the way, when we bought the house, we did not have money for a down payment, and that’s why we went to a loan broker to help us to get 100 percent financing.
A: Unfortunately, the days of 100 percent financing are just about gone. Most borrowers who obtained such loans are now underwater; their mortgage loan is greater than the value of their house. In fact, the 100 percent financing was one of the major catalysts of our mortgage/foreclosure crisis. Borrowers could not refinance because they had no equity in the home, and if they tried to sell, they would have to come up with the difference between the contract sales price and the outstanding loan balance.
Do you have equity in your home? If so, you may be able to refinance. Talk with several lenders, especially about getting an FHA mortgage.
Here’s a suggestion: Talk with the lender who holds your first mortgage. Explain your situation, and tell him the monthly payments are too high and you don’t know how long you will be able to continue to pay them. Ask the lender if you can arrange a loan modification, whereby the lender will give you a new first mortgage based on the combined values of your two existing loans, but at a rate that is considerably lower than what you are currently paying.
I can’t promise success, but it never hurts to ask.
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