Small Loan Refi Suggestions. Please!!!

[Southern Belle]

Does anyone have suggestions for lenders that will refinance small principal balance loans? Small principal means about $50k.
Amerisave/aim/penfed and they don't want small principal loans.

I am in the process of moving. I bought my new house (closed in March, 2013) before I sold the first one. I owe $109k for 30yrs at 3.875% on the new house.
It wasn't the best loan out there but I was just happy to get a lender willing to take on a client with 2 mortgages.

My original house is under contract and closes in 5 days (5/15/2013). I will be getting ~ $60k in equity out of the house.
My goal is to pay down the current loan down to ~$50k and then try to refinance into a 15 year loan.

So can anyone suggest a lender that might refinance $50k into a 15 year loan? I just paid a $3.5k to get this 30 yr loan so I am looking for a zero closing costs loan(no appraisal/ title check etc).
If you ask right, I might just give you a copy of my mama's recipe for sweet tea for helping me...

[MnD]

What you want to shop for is a no cost first lien (or first position), fixed-rate home equity loan.
This is a low risk product that is processed through the consumer lending side of a bank with reduced paperwork but is a home mortgage for tax purposes.

US Bank call their version of this product a "Smart Refinance Loan" but they don't have much presence in the south.
Their current quote for a no cost $50K loan (with no other mortgage on a home worth $100K) is 3.25% for 15 years, 2.99% for 10 years and 2.74% for 5 years.

I have done two of these and they are genuinely no cost and close quickly with very little hassle.
I had to provide exactly one piece of paper for the last one (proof of insurance coverage).
Everything they gather electronically from bank records, credit reports and zillow-like home value service.

[G-Money]

What if instead, you tried this:

1. Sell original home. Deposit sale proceeds in checking account.
2. Refi the full $109K to PenFed's 5/5 ARM with no closing costs. It has a 30 year amortization, but (you'll see below), you'll end up paying it off in less than 15 years anyway.
3. After the refi closes, use the proceeds from the sale of the original house to pay down your mortgage.

Now, under this scenario, refinancing to a 15 year loan on $109K may make the minimum payments higher than you feel comfortable with. I'm seeing rates for a loan of that size in the range of around 3% to 3.125% with no closing costs, which would make your minimum P&I around $750/month.

A 5/5 ARM with PenFed on $109,000, starting at 2.5% with no closing costs, would have a minimum P&I of $430/month.

But if you immediately pay down the $109,000 to $50,000, paying the $430/month for the life of the loan will have the loan paid off in less than 15 years. Assuming you stick to payments of $430/month, if your rate stays at 2.5% for the life of the loan, it'll be paid off in 133 months (11 years, 1 month). If rates jump up to the max, it will take you 138 months (11 years, 6 months) to pay off the loan. If you maintain a $430/month payment (which will be higher than the minimum payment after the first 5 years), and your rates jump to the max each time, your average, dollar-weighted interest rate will be about 3.125%. So this approach will not cost you any more than you would pay for a 15-year refi of the $109K balance, will probably cost you less, and gives you some flexibility.

[frugaltype]

If you make higher than scheduled payments on a loan, be sure that is allowed. Check the paperwork.

[G-Money]

If you make higher than scheduled payments on a loan, be sure that is allowed. Check the paperwork.

Good advice. PenFed allows additional payments toward principal. It's very easy to do online.

You will need to reimburse a prorated amount of the closing costs if you pay off the loan completely within 36 months, but not if you pay it off in 36 months + one day:

Reimbursement of Closing Costs: If you pay this loan off and close the account earlier than the 36-month anniversary date of the loan closing, you will be obligated to pay PenFed a prorated amount of the closing cost credit received from PenFed. This amount will be added to any loan payoff amount requested prior to the 36 month anniversary date. The reimbursement amount will be prorated in equal amounts on a monthly basis. Closing cost credits to be reimbursed include all the closing costs credits.

https://www.penfed.org/55-Adjustable-Ra ... r-04152013 (it's in the small print that scrolls at the bottom of the page).

[Watty]

A good thing to do would be to call your current lender and ask if they will "recast your mortgage" (Google this) if you make a large prepayment. Ask specifically for a "recast" and make sure that you get to someone that is familiar with this. You should a letter with all of the specifics before you send them the money.

What this is that they recalculate your mortgage payment based on the lower amount but the interest rate and length of the mortgage remain the same. For example if you pay down your half your mortgage and it is recast, then your monthly mortgage payment would be cut in half.

You can then pay extra each month as if it were a 15 year loan to get it paid off in 15 years.

They are not required to do this but they likely will and it should only cost a couple of hundred dollars in processing fees.

[G-Money]

^ With a rate of 3.875%, I would first explore any opportunity to refi (without closing costs) to a lower rate before looking into a recast.

Also, I'm not clear what the benefit of a recast would be in this instance. Recasts are typically done to free up cash flow. OP isn't experiencing any liquidity concerns (will soon only have 1 mortgage and is looking to shorten the term). The fees spent on the recast could simply be used to further pay down the principal instead. Without reducing the interest rate, recasting a mortgage at the same rate and paying down principal will not result in any more savings than simply paying down principal at the original loan terms.

[Cyclone]

Do you live in the Boston, Miami, or Los Angeles areas? I know that the bank where I work will make a loan for that amount.

You could try reminding Penfed and the others that under the fair lending laws they are required to serve everyone. I know of banks that have been hit with enforcement actions because they had minimum loan requirements.

[MathWizard]

Try a credit union, and maybe a shorter term

I just got a fixed rate HEL on a $45K balance, 7 years though, not 15.

[Meg77]

What if instead, you tried this:

1. Sell original home. Deposit sale proceeds in checking account.
2. Refi the full $109K to PenFed's 5/5 ARM with no closing costs. It has a 30 year amortization, but (you'll see below), you'll end up paying it off in less than 15 years anyway.
3. After the refi closes, use the proceeds from the sale of the original house to pay down your mortgage.

As a banker, I agree with this approach. Just refi your current loan to a 30 year amortization at a lower rate - if possible. If you don't go with PenFed then maybe try to find a longer term loan (even a 15/30 as opposed to a 30 year fixed), but either way you can always make payments according to a 15 year payoff schedule OR make a large principal reduction after closing as G-Money suggests and effectively have the same thing. By the way you could also pay down the loan to whatever the lowest mortgage PenFed or any other lender will accept rather than refinancing the whole $109K. I think $75K may be a lot more doable than $50K for some lenders.

But sorry i don't know of anybody that will do a $50K mortgage offhand.

[Southern Belle]

Do you live in the Boston, Miami, or Los Angeles areas? I know that the bank where I work will make a loan for that amount.

You are so kind Cyclone but I don't live in those metropolitan areas.

[Southern Belle]

Their current quote for a US Bank no cost $50K loan (with no other mortgage on a home worth $100K) is 3.25% for 15 years, 2.99% for 10 years and 2.74% for 5 years.

I just got off the phone with a charming young man from US Bank. For $55k 15 year loan and zero closing cost he quoted me a 3.875 rate. Same as I have today if I took Watty's idea and recasted my current loan. I don't think I am going to take this option. Thank you MnD.

[Southern Belle]

If you make higher than scheduled payments on a loan, be sure that is allowed. Check the paperwork.

Good Suggestion. I always say that 'the devil is in the details'.

[Southern Belle]

What if instead, you tried this: 1. Sell original home. Deposit sale proceeds in checking account.

I left an important point of the description. I sold the original home and the check is sitting in a savings account until I figure out what to do.

[Southern Belle]

A good thing to do would be to call your current lender and ask if they will "recast your mortgage" (Google this)

Thank Mr. Watty. I called Wells Fargo, my current lender, and for $250 they will recast (reamortize) the new loan balance. I would like to refinance into a 15 yr but if I am no able to then this will be the strategy I use.

[Southern Belle]

pay down the loan to whatever the lowest mortgage PenFed or any other lender will accept rather than refinancing the whole $109K. I think $75K may be a lot more doable than $50K.

Thank you Meg77. I like that idea Many lenders have told me we don't make loans that small but I have not asked them what the smallest size loan they will make. I will now though.

[MnD]

Their current quote for a US Bank no cost $50K loan (with no other mortgage on a home worth $100K) is 3.25% for 15 years, 2.99% for 10 years and 2.74% for 5 years.

I just got off the phone with a charming young man from US Bank. For $55k 15 year loan and zero closing cost he quoted me a 3.875 rate. Same as I have today if I took Watty's idea and recasted my current loan. I don't think I am going to take this option. Thank you MnD.

Sorry to hear that. I got the rates off their web site (using my zip code) and the data you provided. I do know that they have a adjustment sheet with several factors that increase the loan rates (loan to value, credit score, and a few other factors). Before you write off this option, you might want to try their web site with your zip code and data and see what the rate is. If it's 3.25%, maybe call them back and see what the deal is on that rate versus your phone quote. Good luck!

[Tortoise Banker]

Also a banker... I highly recommend finding a HELOC with no closing costs and an attractive rate. Many of my clients use, say, a 15 year fixed rate HELOC to pay off the small balance mortgage. Benefits are no need for an appraisal (savings of 500+ dollars) and no closing costs if you get it at the right bank.

Good luck!

TB

[Saving$]

I am surprised you state Pen Fed does not want to do it. Based on my experience you should not have a problem getting a no closing cost $50k loan from PenFed.