I spent most of this morning at the bank. My primary mission was to take my variable rate Home Equity loan and create a fixed-rate sub loan for it so I don’t continue to get dinged as rates go up. My secondary mission was to register for the free safe deposit box that is supposed to come with our Gold savings account. The secondary mission was accomplished with dispatch. I got to see the cool vault room and play with a hand scanning device.
The primary mission was a little more complicated. I sat down at the loan consultant’s desk and explained what I wanted. He responded by laying out an array of money-borrowing options for me to consider. The one that looked the best was to roll the debt into a new 10 year mortgage. I called Howard and he agreed that it looked best. So I sat down to get the paperwork rolling. Then the loan consultant said “Alright we’ll need to do a credit check, and your property tax statement, and get some income verification.” The credit check isn’t a problem. I have the property tax statement filed. But any lender who looks at our apparent monthly income is going to laugh and refuse to loan us money. I explained this to the loan consultant who hemmed and hmmmed and tried to convince me that I should go through the rigamarole anyway because they MIGHT lend me money.
Let me see, annoying paperwork and credit check with accompanying hassle followed by a refusal to lend money, OR fill out and sign a single page form to get the sub loan I came in for in the first place… I walked out of there with the sub loan.
I much prefer juggling money to juggling debt. But at least I’m being able to see this debt get smaller with each juggling pass. In less than 10 years there won’t be any debt left to juggle.
> … in less than 10 years there won’t be any debt left
Except college for the kids 🙂
You’re awesome. I’m taking notes. What’s a sub-loan?
What we have is a Home Equity Credit Line. It means we can borrow up to $70,000 against our house merely by writing checks. (But be careful, they charge fees if individual checks are less than $500 each.) The rate on the Equity loan is variable, as prime rate goes up, so does our interest payment. For the first 10 years of the loan we only have to pay interest, the second 10 years a strict pay-off-the-loan schedule is instituted. This means an unwary consumers can dig themselves into a really deep hole.
Our Equity loan allows us to make up to two “sub-loans” That is where we take part of what we owe, give it a fixed rate of interest and set up a 10 year pay-off schedule for that amount. Since prime rate is only going to continue to go up, we decided to take our entire loan amount and put it into a fixed-rate sub-loan. Our monthly payment will go up, but since our goal is to pay off the debt and we’ve only got one payment left on our van, now is a good time to manage that.
That was probably more detail than you wanted and may have failed to answer your question. Hope something in the ramble is helpful.
I’m hoping/planning to have the debt paid off in about 5 years which is 4 years shy of college for kids. In theory this will allow us to throw money into savings hand over fist for about 4 years.
Also, my kids will have to help pay for college if they want to go.
Very much what I wanted, and thank you.
But any lender who looks at our apparent monthly income is going to laugh and refuse to loan us money.
Speaking as someone who’s worked in loan operations for the last eight years, I can tell you that this is not necessarily true.
Yes, it should be true. It only makes sense that a bank not lend money to someone if their monthly payments amount to, say, more than their monthly income. But the lending industry doesn’t always make sense.
A huge part of the decision-to-lend is based on your credit score. I remember going to a training session by Fannie Mae (the government-mandated corporation responsible for most of the home loans made in the US) some years ago. They said that if a customer’s credit score was exceptionally good (say, 720 or better), the customer could be fast-tracked and the loan made based on last year’s income, with no requirement for proof of future income. “You mean,” the loan officer with me asked, “if this guy walks in and tells me he quit his job yesterday and doesn’t have a source of income or plan to get one, you’ll still give him a loan?”
“Yes.”
The whole process hinges on one fact, and it’s this: The single best indicator, by a huge margin, of your likelihood to repay debt is NOT your income, and it’s NOT your assets. It’s “Have you repaid previous debts in a fashion consistent with their payment terms?”
There are plenty of rich deadbeats in the world, believe me — we’ve done business with some of ’em. 😛 But people who have paid their bills in the past generally find a way — SOME way — to pay their bills in the future. That’s why banks, especially large ones, rely so heavily on credit scores.
Now, if your bank is a small local one (like ours) they’re more likely to be traditional and deny you credit if your income doesn’t demonstrate a clear ability to repay. But a large bank might well not care — if your credit history is good enough.
That is fascinating information and it makes a lot of sense. It doesn’t make me regret the way things went this time around though, I’m happy with the solution I have.
No wonder anytime a lender sees our credit score the loaning process gets very very smooth.