[William Tygart]

Here is an email I received from a consumer and the response that I gave :

Question:

Interest only Refi. loan

In 2002 I purchased my home for 104.000 at 6.5% fixed. I ran
into some money problems and decided to get a lower rate. I
accepted an ARM 2-1. The 2Yrs are up and now it is going from
4.5 to 5.5 % as of 5-1-07 at an outstanding Balance amount of
109,000.00 My Home is worth 139,000.00. I'm not comfortable
with the ARM any longer and I was searching for a Refi. and
found Quicken Loans. I am 20 Hours away from accepting an Interest
only loan. I have been approved but didn't sign the dotted line
yet. It's for 6.37% Interest only. $500.00 deposit which I authorized
but was not charge yet. Loan amount is $113,000.00 at a monthly
payment of $896.11.

I have to sign the dotted line by tomorrow
at 4PM via internet. I am not sure I am doing the right thing.
A conventional mortgage will cost me $990.00 a month which is
out of my budget. I don't know anything about the interest
only loan, except what I was told. My current payment Is going
up from $791.00 to 855.00. It's a VA loan. I was not able to
make a large down payment when I closed the first original loan.
Now I'm running scared and want out of the ARM but I don't want
to make another bad deal!!!!!! Please try to help with some
Information to me. I dont want to loose the present offer if
it's good.

Signed,

Confused in PA.

Dear Confused:

I received your email and appreciate you writing. The rate on your
interest only loan should be 6% and not 6.375. You did not mention the
actual closing costs so I am not sure if you are paying a loan
origination fee or discount points. If you were to do a streamline VA
refinance you could change your arm into a 5.875% 30 year rate with
minimal closing costs. Contacting your CURRENT lender would be the
best option as they could possibly do it for a few hundred dollars.

Make sure with Quicken loans that there is not any mortgage
insurance,something that your current loan does not have. I never have
liked consumer paying money up front on a loan, the lender can change
terms on you at the last minute and you are out 500 bucks. I would ask
quicken to please drop this requirement. Interest only loans are not a
BAD idea, your loan balance will stay the same and your payment is
slightly lower. If you need the extra savings in payment each month
(and understand the principal balance will not go down) then by all
means go for it.

* Here is what I would like to see you do:



1) call your current lender and ask them about a streamline VA
refinance into a fixed rate mortgage, tell them some guy says 6% is
the most the rate should be.

2) call quicken and ask for a Good Faith Estimate

3) as Quicken to drop the 500 dollars up front

4) You did not mention what service you are in but call your Military
Credit Union and ask the loan officer for some suggestions (as a
second opinion to mine) They are member owned and give great advice.
(I am a member of Navy Federal Credit Union myself)