Just Approved Terry Hastings Banker helps buyer pay down mortgage after home sells
Mortgage banker: Terry
Home value: $650,000
Loan amount: $520,000
Loan terms: 4.125 percent 10/1 arm
Backstory: Hastings received a call a buyer who was referred by their Realtor. They were given a quote by another banker and wanted to compare it and get some advice.
Hastings asked questions about their income, assets and with their permission pulled a credit report.
The buyers were interested in purchasing a home before they sold their current home, but there was a twist. Once they sold their current home, they wanted to pay the new loan down by $100,000 to lower their payment.
An internet bank had suggested “stacking” the loan with a second mortgage of $100,000 they could pay off later.
When a buyer “stacks” a loan, they get a second mortgage on top of the first with the intent of paying off the loan at some point in the future. The interest rate is typically based on the prime rate plus another margin. In this case, the proposed rate would be almost 6 percent.
To make matters worse, the second mortgage would have some fees and a possible pre-payment penalty. In addition, it would rise anytime the Fed raised their rates, which in the past year had happened multiple times. While the proposed scenario seemed to satisfy their needs, Hastings suggested a cheaper solution.
Some banks will allow you to “recast” a loan for a small fee. Recasting is when you pay down your mortgage with a large chunk of money and have your monthly payment lowered to reflect the new principle paid over the same 30-year period. Without recasting, any additional payment paid toward your principle just shortens the loan term and not the future monthly payment.
Hastings’ bank offered recasting and would allow the borrower to get one loan with a lower rate and gain the ability to pay it down once their departing residence sold. Seeing the benefits, the clients accepted that proposal and two weeks later were approved.
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