I am finally doing my re-fi. I gave up with the one for USAA that required the Verizon blight gone. I decided to pay off all the credit cards with the savings, and when I did that I found I didn't even need a jumbo loan anymore.
So I found a great loan, ran the numbers, and started the re-fi. Its one of those crazy 5 year loans + 1 balloon payment. The ones everyone is warned about. I'm serious :} I'm going with ING, an internet bank I have several accounts with. Closing costs are ~$4000 total.
But this is how the numbers work out:
The loan is set up for 30 years, biweekly payments. The rate is fixed for 5 years at 2.5% (my mortgage was at 5.37 and home equity at 2.99). In 5 years I can refinance the remaining balance for $1600 total closing costs.
If I pay the amount I am currently paying just for my mortgage I can pay off the new mortgage in 11 years (without a rate change, see below). If I add in what I pay for the home equity, and what i save monthly for my 6 month emergency fund, I can pay off this mortgage in 8 years. I will have to get funds for taxes and insurance ($6000 a year) so money will be a bit tight.
There was also $19,000 that wouldn't go into this loan that needs to be paid off, I got a personal loan at 10.39%. Ouch, but they gave it to me right away. Money was in my account within a day. I have to pay it towards the home equity so ING can close it. The payments are $500/month, but I have a few thousand already for it and figure it will get paid off completely within a few months.
The big scary negatives about this are .... we have to refinance in 5 years. 1) K and I need good credit. K currently has a 760 and I have a 748 (with the verizon blight). I can't see that changing. 2) the interest rates are going to go up. I know they were high in the 70s. But I don't think they are going to jump there in 5 years. The worst is a percent a year, and 7.5% isn't that bad interest to pay. It will only delay repayment a year or so. 3) the house could go down in value and we could only refinance 80% of the value, which means we'll have to have $$. We can always get $$ from loans or credit cards. If I pay it off as planned we will have 65% equity of what the house is currently valued at. It would have to lose a lot of value to go under water. 4) we could lose some income. My planned payment is about 30% of our take home income. So if we lose some income we can still afford the accelerated payments. I may have to give up a few international trips, or actually ask for travel money.
If more than one bad thing happens, it could get tight. Could end up with a big payment that's hard to refinance at high interest. If everything continues to be peachy keen, we can make real headway into paying off this debt. And then I'll use the house for collateral to buy property for the business :}
So, I know its a crazy loan. But I've run the numbers many times and it works out. I think these are all the risks, and I think they are low/bearable.
I am really impressed with the INGdirect re-finance process, BTW. Its all electronic. I can upload the documents, and there are easy checklists to follow. I already have everything signed, they have reviewed/approved most of them (I saw that they needed the second page to one so I uploaded it, got it to them within a day). I'm already in touch with the title company for closing and have sent all the forms and arranged a RemoteClosing, where we have to go to a notary and approve the docs and someone else to sign in person. So we don't have to arrange for a time for someone to come here. I just love living in the future.