Bob Kieber
Special to the Daily

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September 22, 2012
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Financial Facts: Lower loan amounts can cost much more

With the home-mortgage interest rates as low as they have been for years, I have been receiving calls from more than the usual suspects inquiring about refinancing, every dollar figure from $1 million down to $10,000.

The million dollar refinances are generally fairly easy to do, as anyone who can afford to have a seven-figure home has their people keeping track of their finances. The hard ones to complete are the ones where less than $100,000 is owed and the new loan amount would be approximately the same amount.

The reason is fairly simple, although amazing. Most home-mortgage lenders have come to the conclusion that any mortgage of approximately $100,000 or less is really not worth doing. Better yet, the investors are starting to penalize the lower loan amounts with either a small monetary fee or with a prepayment penalty of up to three years.

So if you have a small mortgage with a high interest rate, here are a couple of ideas that just may save you some cash when you do refinance.

My first way to save some cash is to take out a second mortgage to pay off your first mortgage. Then your first mortgage is gone and your second mortgage becomes your first-and-only mortgage. As an example, Fred and Ethyl Smertz have owned their home for many years. They have only one mortgage and that is $55,000. The home will appraise for over $200,000. The interest rate on their current mortgage is 5 percent. By getting a home equity line of credit, or more commonly known in the mortgage profession as a HELOC, Fred and Ethyl borrow another $55,000 and with those proceeds pay off their first mortgage. The new mortgage is a fixed rate in the mid 4 percent range and they have essentially refinanced to a lower rate with very little cost.

Now in the case of Ms. Natalie Dressed, she needs to refinance her high interest rate mortgage but she also wants to take out some cash to pay off a few debts and buy a new car. Her current mortgage has a payoff of $80,000 and she wants cash money in the amount of $50,000. Since the cash to her brings her mortgage amount to $130,000, she has accomplished a couple of things. She now has a new mortgage at a lower interest rate and she has the cash to pay off her bills and buy that new car. She has also avoided the lender fee for low loan amounts and she is getting the interest paid to the lender as a federal tax deduction.

These are just two ways to be creative in getting your finances in order and taking advantage of a couple of ways in doing so. I strongly suggest that unless you are a full-time mortgage professional you need to meet with one to learn what programs are available to you and how they may benefit your financial situation. Don't wait, call your friendly neighborhood mortgage professional today. You owe it to yourself and your wallet.

For answers to your mortgage related questions, call Bob Kieber at (970) 453-4700 or email him at rkieber@centennialbanking.com. Bob is a local mortgage lender with Centennial Bank. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country. Member FDIC, Equal Housing Lender. NMLS Bank #401640 Broker #289610. For tax benefit information, please consult with a professional tax advisor. The opinions expressed are those of the individual, and do not necessarily reflect those of Centennial Bank.


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The Summit Daily Updated Sep 22, 2012 12:48AM Published Sep 22, 2012 12:46AM Copyright 2012 The Summit Daily. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.