assumable loan - Posted by bcole

Posted by bcole on May 11, 2000 at 07:47:50:

thanks ed.
the house will not be owner occupied. the reason I want to refi is because the cuurent owner has a high interest mortgage and I thought with my good credit scores I could get a lower rate. the owner is asking 115K, mortgage balance is 99k. owner is willing to give about a $6000 credit.

assumable loan - Posted by bcole

Posted by bcole on May 11, 2000 at 24:20:13:

I have the opportunity the buy a property that has an assumable loan (not FHA/VA) at a high interest rate (10.75). If I assume the loan, how long would I have to wait to refinance? I have excellent credit scores. Could I negotiate with the current lender?

Also, if I assume the loan do I have to go through the usual closing process? Getting a title commitment etc.?

Re: assumable loan - Posted by JPiper

Posted by JPiper on May 11, 2000 at 13:28:38:

If you have excellent credit scores the question in my mind is WHY assume a high interest rate loan? Why not get a new loan?

Alternatively, with the margin you evidently have on this property (skinny), why obligate yourself for a loan at all? Why not do a creative deal, such as lease/option, etc.?


Re: assumable loan - Posted by Lori Samson

Posted by Lori Samson on May 11, 2000 at 02:54:00:

If the loan is in it’s 8th year or it’s 15th year makes a big difference. Do the math or call a broker to do it, but if you are in the 15th year of the loan you are starting to pay alot of principle and you could develope a lot a equity fast! Even if you refinance it to get a lower payment you make some extra cash flow now but it will be years before you really gain on the interest they loan on the front end of a new loan. I’m not sure I would want to refinance unless you can pull some nice cash out AND lower the payments a lot! Lori

Re: assumable loan - Posted by Ed Garcia

Posted by Ed Garcia on May 11, 2000 at 24:56:27:


To assume a loan, you do not have to go through the usual closing process,
getting Title policy etc.

All you have to do is notify the lender to send you out a loan package, and
then fill it out and send it back. They usually will charge you a fee of $500 to
1 point to assume the loan.

As far as negotiating the principle balance with the lender. That would depend on
rather or not, the lender would feel if it’s in their best interest to negotiate the loan.
The main factor would be, if the loan amount is higher then the value of the house.
If not, then I don’t think it’s realistic at this time.

As far as how long should you wait to refinance it? That depends on you. You mention
that you have a good credit score, but you don’t give us any information as to, is this
owner occupied, none owner occupied, how much down, what’s the LTV , etc.

Ed Garcia

This is a common misconception. - Posted by MDonovan

Posted by MDonovan on May 11, 2000 at 12:53:27:

Its easy to understand amortization if you know the basic idea behind it. The interest paid during any period is figured by multiplying the interest rate by the remaining balance. Any additional amount included in the payment will reduce the remaining balance.

Example: 30 years (360 periods), 12%, $100,000.
Payment will be $1028.61. The first payment is computed by taking the balance (100,000) and multiplying the interest for one month (1%) giving $1000 interest paid. The remainder (28.61) reduces the balance to $99,971.40. So the second payment is 1% of this (999.71) for interest and the remainder (28.90) reduces the balance to $99,942.50. And so on…

So, if we look at the payment at the start of year 15, or half way through, the balance is $85,705.71. So our payment is 857.06 for interest and $171.55 applied to the remaining principle. Now lets say we re-finance a new loan at the same terms: $85,705.71 balance, 12% interest, 30 years. The payment would be $881.58. But notice that the actual interest paid is still the same: $85,705.71 times 1% = $857.06. So if you sent in the same payment amount as before, you would be paying the same amount to the remaining balance, and it would pay off in the remaining 15 years.

So you see there is no front loading disadvantage when refinancing (other than points and fees).

Just remember that the payment applies to this month’s interest, the remainder to the balance.