||Ask Dr. Don
Getting out of an interest-only
Dear Dr. Don,
I have been in an interest-only mortgage
at 10 percent for the past six months with a private investor. I
am planning to change the terms of the note with the same investor
to 9-percent interest for 15 years.
My loan is for $85,000. Should I try to go with a
conventional lender or stay with my private investor? I realize
I might get a better interest rate with a big bank, but feel my
credit is not good enough for the big boys. What would you suggest?
Take the guesswork out of the lending process by getting
a copy of your credit report and your credit score. Any one of the
three main consumer-reporting agencies -- Equifax, Experian, and
TransUnion -- can provide you with a credit report and a credit
My preference is to use Equifax's Score Power where
for $12.95 you get
a copy of your Equifax credit report and your Beacon Fair
Isaac credit score.
If you comparison shop for mortgage loans within a
short period (two to four weeks) multiple loan inquiries
won't hurt your credit score. That's because it's self-evident that
you're shopping lenders.
It would be unusual for someone to refinance several
homes in a month, so several mortgage applications doesn't raise
a red flag. Stringing it out over a longer period, however, can
hurt your credit score and your ability to get a good interest rate.
Postpone looking for a new credit card or any other
type of financing until after you close on your refinancing because
these credit inquiries will lower your credit score. (Don't worry
about those pre-approved offers you get in the mail. Marketing pitches
initiated by credit card firms don't hurt your rating if you don't
respond to the mailer.)
Currently an A credit qualifies for a 15-year, amortized
mortgage at a national
average of about 6.3 percent. (Bankrate has feature that will
help you to estimate
your credit grade.)
You weren't clear whether the private investor was
offering a 15-year amortized loan at 9 percent or an interest-only
loan for that rate and term. Regardless, you don't really want an
interest-only loan for a 15-year term and as an A or B credit you
should be able to do better on a first mortgage refinancing for
an amortized loan.
-- Posted: May 24, 2002