Neither of these loans seem very attractive. But the borrower must consider the options available. Most likely, there is something in the borrower’s financial history which represents a risk to these lenders.
No doc loans will always be the most expensive. Unfortunately, sometimes you have to settle for what is available. Be sure to shop around. Talk to other mortgage brokers. At these costs, you may be able to afford to wait.
What should it cost to get this loan (aside from “best deal you can make”)? Here is the situation.
Borrower has high equity in his homestead and wants to take cash out. His original note was sold and he does not like the way it is being serviced so he will be paying off the first and still have one loan + cash out. It is to be a no-doc loan (no income verification, appraisal). The loan amount, $65K, is based on the assesed value. The mortgage broker came back with 2 lenders willing to write the loan.
5 year balloon amortorized over 30 years, 4 points, 11.75%, and 6 months interest on 80% of the loan balance pre payment penalty if paid in the first 3 years.
30 year fixed rate @ 12.65% (no balloon), no points, no pre payment penalty.
Either of these would be ok for a short term investment type loan (aside from the pre payment) but is this the best he can do for this type of loan (no doc equity) on his homestead?