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Thread: info about refinancing... made a bad decision

  1. #1
    tampafldancer
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    Default info about refinancing... made a bad decision

    Ok.. A home was bought at a VERY HIGH interest rate, and i am presently under contract for two years (one more year)with the morgage company signed or i have to pay a crazy high penalty of 20 percent of the original borrowed loan amount.


    I want out of the house, I want out of dancing, i want out of the state, i am pulling my hair out over this.

    Here is the kicker and i am hoping it makes a difference ALTHOUGH i think it wont. They sold the loan out from under me to a different company. Does this change anything?

    I can't really sell because home values are not too great right now and to rent this house out i would still prob have to come up with 1k a month extra for my loan.


    Any ideas? Please?!! Yes, prob a mistake to buy the home when i did and the interest rate and everything. That is the past and i need to move on at present.

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    Default Re: info about refinancing... made a bad decision

    Quote Originally Posted by tampafldancer
    Ok.. A home was bought at a VERY HIGH interest rate, and i am presently under contract for two years (one more year)with the morgage company signed or i have to pay a crazy high penalty of 20 percent of the original borrowed loan amount.


    I want out of the house, I want out of dancing, i want out of the state, i am pulling my hair out over this.

    Here is the kicker and i am hoping it makes a difference ALTHOUGH i think it wont. They sold the loan out from under me to a different company. Does this change anything?

    I can't really sell because home values are not too great right now and to rent this house out i would still prob have to come up with 1k a month extra for my loan.


    Any ideas? Please?!! Yes, prob a mistake to buy the home when i did and the interest rate and everything. That is the past and i need to move on at present.
    I don't know how to get out without taking a loss, but I know that selling mortgages to other companies is very common (happened to me immediately on both my mortgages.) The terms are the same because the company it sold to doesn't want to take extra liability. You probably got the loan from a broker who intended to sell it the whole time.

    If you want out of the house, refinancing won't help because then you have another mortgage and you still have that clause that you have to stay with them for 2 years.

  3. #3
    tampafldancer
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    Default Re: info about refinancing... made a bad decision

    well if i refinance at a much better rate i may be able to hang on to it for another couple of years why i rent it out... I really dont want to pay 1k extra a month while living somewhere else.

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    Default Re: info about refinancing... made a bad decision

    well if i refinance at a much better rate i may be able to hang on to it for another couple of years why i rent it out... I really dont want to pay 1k extra a month while living somewhere else.
    If I'm interpreting what you're saying correctly, your original mortgage has a 2 year 're-fi penalty clause' with one year remaining. That clause remains in effect unless your mortgage holder voluntarily agrees to waive it - and resale of your mortgage to a different mortgage holder doesn't invalidate the clause. Thus if the purchase price of your house was $250k, you'll wind up having to pay $50k in penalty if you attempt to re-fi before October 07 unless your current mortgageholder waives the penalty.

    The current mortgageholder MAY agree to waive the penalty if you re-fi your house through THEM. However this may not result in much of an improvement in interest rate. Also, if you're in an area where real estate prices have fallen (you state you're from Florida), in order to re-fi at all you will have to come up with enough cash to cover any drop in the current market price of your house.

    Let's say worst case that you bought a $250k house last year with $25k down payment, and that your mortgage payments over the past year have reduced the principal by $5k - thus you owe a balance of $220k in principal. Let's also assume that real estate market prices in your area of Florida have dropped by 15% ... meaning that the current market value of your house has dropped to $210k. In order to re-fi at all (i.e. 100% financing of the $210k current assessed value), you would need to cough up another $10k in cash to cover the shortfall plus closing costs. In order to re-fi at a low interest rate (i.e. 80% financing) you would need to cough up the same $10k shortfall payment plus an additional $42k as a 20% down payment on the current assessed value plus closing costs.

    If it's any consolation, you're not alone. Untold thousands of homeowners in 'bubble' areas like Florida, California, Arizona etc. are in exactly the same situation due to declining real estate market prices plus going rates for rents which are very low in proportion to the purchase price of the house they are renting. There really isn't any easy answer other than waiting out the 're-fi penalty' period, saving up a lot of cash, and hoping that the Florida real estate market doesn't decline much further during the year in between.

    (snip)"Six months ago, the Rabb family put its two-story Colonial home near Tyrone Square in St. Petersburg on the market for $440,000 after Rob Rabb's job was transferred to Atlanta.

    Two months ago, he left for Atlanta to sell church directories and portraits, leaving behind his wife, Jan, 36, and their four kids.

    Frustrated that their home didn't sell, the Rabbs reduced their price to $369,000 - $20,000 below the home's appraised value.

    "We've had so many people come back and say 'we love it but we have to sell our house first,' " Jan Rabb said. "Nobody locally is able to sell their house. People from out of town are the best buyers right now. It's almost like everything is standing still."

    This past week, a family from California made an offer slightly below $369,000, and the Rabbs accepted. They declined to say how much. The contract is pending. Still, even at the lower price they will make well over $100,000, she said.

    Across the Tampa Bay area, "for sale" and "for rent" signs are popping up left and right, many homeowners are beginning to offer price reductions and incentives, and people who traditionally have sold their homes on their own are turning to professionals for help.

    "It's kinda scary," Ellenn Poyssick, 41, an investor seller, said as she showed Whitlatch a Crescent Heights home in St. Petersburg that she and her husband fixed up. She and her husband have renovated eight houses and always sold them on their own. But recently, one of the homes in Tampa's Seminole Heights didn't get a single showing in four months.

    "I was so desperate, I went ahead and leased it," she said."(snip) from



    As to the option of renting / leasing out your property as an 'absentee landlord', yes this would probably contribute $12,000 in positive cash flow over the course of the year which remains on your 're-fi penalty clause'. On the other hand, if your tenant turns out to be a dickhead and winds up doing damage to the property they may cause $12,000 worth of additional depreciation - which you'll either have to pay out of pocket to fix up or pay out of pocket in the form of a higher 'shortfall' payment when your house is reassessed prior to re-fi next year. The only way to avoid this risk if you want to leave Florida is to employ a 'surrogate landlord' like Century 21 to keep a constant eye on the tenant for you, but at a price.
    !
    Last edited by Melonie; 09-27-2006 at 03:29 AM.

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    Default Re: info about refinancing... made a bad decision

    Mel's right. My fiance got into the same shit. He can't refi or sell without paying a large penalty. "Early pay penalty"

    And he got suckered into one of those negative amortization ARMs on which the interest rate is going to skyrocket soon. I just wish we'd been a bit further along in the relationship at the time so I could've known what he was doing - I would've seen to it he didn't buy that. He has excellent credit, job history and had a huge down payment. The perfect home buyer. He could've picked his mortgage but got fucked over by a broker who sold him up river The best thing that came out of our little move to Seattle is that he had to take a hard look at his contract and found out all the details, so now instead of paying that minimum payment and tacking onto his principal, he's paying the regular payment at least.

    Anyway, sorry tfd. You really don't have a choice if you want out of that house so bad. You're either going to have to pay that penalty or rent the house and pay whatever portion of the mortgage isn't covered by rent. Considering the % of the penalty, I think I'd probably rent it and pay the mortgage.

    Of course this is based on the info you posted. Best to take your contract to a contract attorney for the most accurate info and best advice.

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    Banned Melonie's Avatar
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    Default Re: info about refinancing... made a bad decision

    ^^^ There's also an additional risk factor to be considered if your house is located in a serious 'bubble' area ... future real estate price declines in the short term. If things get really ugly, it's not impossible that last year's $250k house which has already declined in market value to $210k could theoretically decline further to say $180k over the next year while you wait for the 're-fi penalty clause' to expire. If that's the case, then simply waiting another year could cost you an additional $30k in market price decline plus a year's worth of mortgage interest payments plus a year's worth of insurance and property taxes ... versus simply dumping the house on the market right now for whatever price it will still fetch - a situation where it might actually be 'cheaper' to pay the penalty. You'll have to do the math for your own particular situation.

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    Default Re: info about refinancing... made a bad decision

    It's called a pre-pay penalty. I cannot believe you got a pre-pay on a high rate...but anyways.

    There are two types of pre-pay penalties:

    A "hard" pre-pay is where you will have to pay a penalty regardless if you refi or sell. These suck and you should never, ever agree to this.

    A "soft" pre-pay is where you will only pay a penalty if you refi. But, if you sell the home, then you will not have to pay the pp penalty. If you have to do a pre-pay, then this is the one to look for.

    I think you really need to look at your paperwork and find out what kind of pre-pay you have. That will make a big difference (are you sure its a 20% prepay??). There is a limit on how much a bank can charge on a pre-pay. It's a 5 year limit OR 5%, they cannot do both. OR you could have to pay a 20% pre-pay on the INTEREST OWED...but not on the full loan value. Does that make sense? If you got your money from a private source (and it doesn't sound as if you did if the loan was sold off) then they can charge whatever they want. However, all banks are regulated and there is no way that they can charge you a 20%, 2 year pre-pay on your full loan amount.

    Does that make sense? You really need to pull out your closing papers and read what you got.

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    Featured Member scorpio's Avatar
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    Default Re: info about refinancing... made a bad decision

    There is no such thing as a 20% pre-pay. Check your closing papers. What lender do you have?

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    Default Re: info about refinancing... made a bad decision

    some disturbing stats on Florida foreclosures ..



    which while shocking aren't as bad as in Ohio or Michigan ...



    (snip)"One in five home purchase loans made in 2005 by Cleveland’s top mortgage lender are already in foreclosure, according to an investigation by the Cleveland Plain Dealer.

    Three years after entering the Cleveland market and becoming the city’s top mortgage lender, California-based Argent Mortgage Co. is under fire from critics who allege the company’s lax lending practices are one reason the city has the highest foreclosure rate in the nation.

    Ironically, the investigation found that an anti-predatory-lending law passed by the Cleveland City Council in 2002 likely opened the door for Argent, because some lenders stopped doing business in the city.

    Argent entered the Cleveland market in 2003, and within a year had captured 22 percent of the city’s mortgage business, the Plain Dealer reported. In 2004, Argent made twice as many home loans as former market leaders Charter One Bank and Third Federal Savings & Loan combined.

    Although the Plain Dealer said other subprime lenders have similar or higher foreclosure rates, Argent wrote more loans and therefore had the greatest impact on the city. The company made 1,258 purchase loans in 2005, 20 percent of which are in foreclosure."(snip)
    ~

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    Default Re: info about refinancing... made a bad decision

    a pre payment penalty is usually the equivalent of 6 months interest...20% is ridiculous...re check that!
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  11. #11
    Sitri
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    Default Re: info about refinancing... made a bad decision

    I would have a real estate lawyer take a quick look at it. Sometimes the lender will put all sorts of clauses and crap in a contract knowing that it may not be legal or enforceable. But, they will protect the whole agreement by putting in a clause that if any part of the agreement is found to be unenforceable it does not invalidate the remainder of the agreement.

    i.e. I can put in a 20% prepayment penalty knowing that it is not enforceable because I want to scare the shit out of you or hope that you won't challenge it. But, my ass is protected because I can still do no worse than what is allowed.

    Does this make sense?

    Hmm, another thought. How much are you allowed to prepay without triggering the prepayment clause. If you could prepay say 50% and refinance it without triggering the penalty, that may be O.K.

    Sorry to see that it is turning into a bad deal. I remember how happy you were to buy a home.

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    Default Re: info about refinancing... made a bad decision

    It is not Argents or any other lenders faults that there is a high foreclosure rate. People need to stop blaming the banks. It is the people who do not pay their mortgages. It is the companies who outsource to India so the people cannot pay their mortgages. It is the lenders with "lax" guidelines that have enabled many to even buy homes instead of rent. That is still not the lender's fault that someone doesn't pay what they agreed to.

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    Default Re: info about refinancing... made a bad decision

    Quote Originally Posted by VenusGoddess
    It is not Argents or any other lenders faults that there is a high foreclosure rate. People need to stop blaming the banks. It is the people who do not pay their mortgages. It is the companies who outsource to India so the people cannot pay their mortgages. It is the lenders with "lax" guidelines that have enabled many to even buy homes instead of rent. That is still not the lender's fault that someone doesn't pay what they agreed to.
    Whoa.

    We are talking about a population who sues over slipping on ice in the middle of winter!


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    Default Re: info about refinancing... made a bad decision

    ^^^ I'll take a middle of the road position here and say that homebuyers must share an element of blame. This is particularly the case in regard to their choice to make a 30 year financial commitment where the monthly payments stretches their ability to pay to the point where they must also rely on zero change in their after-tax earnings (with continued employment and annual pay raises NOT being guaranteed for the same 30 years) and where their initial equity (i.e. down payment) is so low that they must also rely on zero retracement in real estate market values to avoid an underwater situation (with continued real estate price increases / stability NOT being guaranteed for the same 30 years either).

    I'll also throw some element of blame on subprime lenders who (until recently anyhow) were willing to approve zero down mortgages, interest only mortgages, adjustable rate mortgages etc. for would-be home buyers whose credit rating and financial situation would never have qualified for a 'conventional' mortgage loan or for a loan which the subprime lender intended to hold to maturity themselves.

    To some degree at least, the subprime lenders were only responding to US gov't policy set down in the late 90's which directed Fannie Mae and Freddie Mac to encourage increased home ownership by minority groups, which resulted in a loosening of FNM / FRE creditworthiness criteria for mortgage loans - such that as long as the subprime lender wrote a mortgage that met the looser FNM / FRE criteria for resale, the inherently greater risks of such loans going into default was passed on to FNM / FRE via the resale of the loan instead of being taken on by the subprime lender holding the loan to maturity.

    The subprime lenders themselves were in many cases also only responding to local 'fair lending practices' laws which had previously caused 'mainstream' mortgage lenders to stop writing new mortgage loans altogether in localities that had passed such laws - in order to maintain creditworthiness standards for all of their newly written mortgages that they intended to hold to maturity themselves, while at the same time avoid accusations of discrimination based on race / social status rather than on lack of creditworthiness (see Cleveland foreclosure story above). I would add that, prior to the change in direction of US gov't policy towards mortgage lenders in the '90's, and prior to the loosening of FNM / FRE criteria an the encouragement of resale of mortgage loans, the creditworthiness standards set by 'mainstream' mortgage lenders would have prevented 'irresponsible' would-be mortgageholders from obtaining mortgage financing in the first place - and would have prevented much of the avalanche of defaults and foreclosures that are now beginning to gather speed.

    The 'tin foil hat' crowd is of the opinion that FRE and FNM have already absorbed unbelievable losses, that the degree of these losses is being obscured by delayed financial reporting and alleged sleight-of hand accounting (which is being investigated) - but that eventually the magnitude of these losses must come out, and that as Gov't Sponsored Entities FRE and FNM will turn to the US taxpayer for a bailout which will make the 1987 S&L bailout look like pocket change.

    Thus if there needs to be one major underlying 'cause' of the current real estate default and foreclosure rate, unintended side effects of well-meaning '90's US gov't policy towards mortgage lenders must be near the top of the list.
    ~
    Last edited by Melonie; 09-29-2006 at 03:29 AM.

  15. #15
    Sitri
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    Default Re: info about refinancing... made a bad decision

    hmm, I think she was looking for specific ideas not a position paper on the real estate industry. :}

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    Default Re: info about refinancing... made a bad decision

    I think alot of unscrupulous lenders and mortgage brokers sold alot of people a pile of shit. "Achieve the American Dream - we can help you. Even if you have bad credit, no down payment, no verifiable income, divorce, bankruptcy, non-citizen, etc, we can help you."

    Is there any reason to wonder why so many people are in or headed for foreclosure now?

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    Default Re: info about refinancing... made a bad decision

    It comes down to personal responsibility. No matter what anyone else tells you, if you cannot afford a house, you cannot afford a house. Simple as that. Saying, "Well, they said that if I did x, y, z that I might be able to afford a house and now I'm mad cuz I knew the whole time I couldn't, but now I can't do anything about it."

    People think that they need to buy these huge ass, mini McMansions to look good. Instead of starting small and working their way up, they put all of their money/savings/etc into these huge houses and then get foreclosed on because they NEVER COULD afford it to begin with.

    There are "unscrupulous" brokers out there...but the final decision-making lands with the homeowner. They know before they ever sign papers that they can or cannot afford the house...them going ahead and signing the papers anyways is just them pulling the wool over their own eyes. Not anyone else.

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    Featured Member Vamp's Avatar
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    Default Re: info about refinancing... made a bad decision

    There are a lot of people that are living outside of their means.

    There has also been a loosening of lending criteria in the past thirty years.

    First it started with credit card companies, then car loans, and the past ten years mortgages. The fact of the matter is that all lenders are out to make money. They will feed you any pitch to get you to sign on the line. It is your responsibility to make sure you are getting what you pay for.

    The problem in all this is that the process of obtaining a loan of any kind has become so complicated, without a lawyer, there is no way to go over every aspect. You can ask every question and still miss another aspect or not understand the jargon on the application. An individual who isnt in the finance world depends on representative to explain the process. This is where the trouble begins. Reps have quota's they have to meet. They could careless what is good for you, they only care about what is good for them. This is why I tell everyone to research research research before doing a loan. Do not take anyone's word for anything. Educate yourself before even starting the process.

    Companies no longer see social responsibility in how they do business. Social responsibility is now seen as something they do thru a charity after the fact.


    I think there is alot of forclosures because of what is termed as creative financing ie 125% loan to value mortgages, 80/20 mortgages, and ARMs. Combined those mortgages with subprime lenders and it is just asking for trouble.

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    Default Re: info about refinancing... made a bad decision

    hmm, I think she was looking for specific ideas not a position paper on the real estate industry.
    the initial steps are basically spelled out among the multiple posts ...

    A. sit down with mortgage documents and figure out exactly what sort of legally enforceable penalties are really involved in bailing on the mortgage immediately (with professional help if necessary)

    B. research the current local real estate market appraisals and the actual equity position of the mortgage to see if it's possible to bail out immediately without being required to inject additional cash (either as a result of the early sale / re-fi penalty or to cover a shortfall in equity due to declining value of the property over the past year, or both)

    C. research the current local lease / rental market to see what sort of realistic monthly negative cash flow can be expected i.e. mortgage + taxes + insurance + maintenance minus rent payments should the choice be to wait out the early sale /re-fi penalty by leasing / renting the property for another year

    D. further research the future trend in local real estate appraisals to try and project the probable resale value of the property a year from now versus the probable current resale value

    then sit down, add up all the numbers, and see which one(s) are the least damaging

  20. #20
    tampafldancer
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    Default Re: info about refinancing... made a bad decision

    Im not living outside my means and i can afford my house.

    The problem is i want to move and quit dancing. I'll look into my paperwork again, but im pretty sure it was a 20 percent penalty.. If i sell it is waived but if i refinance it is not.


    Property values since i bought have stayed kind of the same (someone sold down the street for 10k more then purchased 1 month ago) and others are still selling. I just don't think i could really sell right now because i do see a bunch of for-sale signs. I have to also admit that right now i would much rather refinance then sell the house because of a loss of closing costs, etc... and just a general pain in the ass process of buying another home.

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    Default Re: info about refinancing... made a bad decision

    ^^^ well, then it's absolutely essential that as a next step you get professional advice to see whether the 'apparent' 20% re-fi penalty is actually legally enforceable, whether the 20% applies to the entire loan principal, to the 'lost interest' over the entire term of the loan, to the 'lost interest' between now and the 2 year mark etc. so that you can place an actual dollar value on the re-fi penalty. If the penalty is huge, then it's probably worth waiting out the extra year.

    You also probably need to get a new appraisal to see if the current value of your house has declined relative to the amount you purchased it for last year - to determine if seeking a re-fi is going to require you to pony up additional cash to cover a shortfall in equity between your outstanding mortgage principal and the new appraised value.

    However, you might also want to read the other thread on new mortgage lending regs which are soon going to come into effect, because waiting a year and then seeking a re-fi under the new creditworthiness / income documentation requirement of these regs might limit your available future re-fi options (and available interest rates). If the re-fi penalty turns out to only be 20% on one year's mortgage interest you may want to go re-fi shopping sooner in order to beat the new regs going into effect (and also to avoid further declines in appraised value thus larger payments of additional cash to cover a shortfall in equity before you can re-fi).

    If you're looking to move, at the moment the house rental market in virtually all large cities is significantly 'cheaper' than the cost of buying the same house plus paying property taxes + insurance + upkeep. Since you don't have any mortgage penalty for an early sale, have you considered looking into renting/leasing a house in your new location, putting your Florida house on the market, and waiting for real estate prices to decline further before you buy a house in your new location maybe a year or two from now ?


    (snip)"One final point; if higher home prices are being driven by fundamental factors, then home prices and rents should rise by roughly the same amount. This is not happening. Rents rose somewhat more rapidly than inflation from 1995 to 2001, although not as fast as home prices. However, in the last two years, the rate of increase in rents has slowed. Rents are now rising less rapidly than inflation. In fact, in some of the bubble markets, such as Seattle and San Francisco, rents are actually falling. While falling rents may not yet be benefiting low-income renters, the decline in rental prices generally provides compelling evidence that the run-up in home prices is not being driven by fundamental factors.

    The weakening of the rental market is the result of a record rental vacancy rate. The number of vacant rental units is increasing at a rate of more than 400,000 a year. This will continue as long as home prices stay near their current level, giving builders an incentive to build homes at a near record rate. Eventually, the glut in the rental market will put downward pressure on home sale prices as people opt to rent rather than buy, and landlords look to sell off vacant rental units. This will bring home sale prices back in line with rental prices."(snip)

    from

    ~
    Last edited by Melonie; 10-01-2006 at 01:03 PM.

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    Default Re: info about refinancing... made a bad decision

    I have a friend who lives in Brandon that has been trying to sell her house for months. She said there are like over 30 houses in her subdivision on the market right now. I think it's going on all over the Tampa area. But it seems if you drop your price lower than the rest you will sell because all the other prices are so high. Maybe you could contact a realtor and just look into selling your house. It also would probably be a good idea to take your paperwork to a real estate attorney just to see what they say.

    Where are you planning on moving? I am going back to New Orleans and despite the fact that rents are way up there now it seems you can buy a home for a lot cheaper than in Tampa. Tampa's home market seems SOOO inflated it's ridiculous.

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    Default Re: info about refinancing... made a bad decision

    PM me and I will give you my contact #. I have a Florida licence and I can determine what your options are and refi you if necessary. I can guarantee you there will be no 20% pre pay. The max in FL is 5%.

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    God/dess NinaDaisy's Avatar
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    Default Re: info about refinancing... made a bad decision

    Sales are pretty flat in Florida now, so it looks like you'll need to sit down and do some math. If you're looking to sell soon and fast, you'll almost certainly have to take some kind of loss on it. There's just so much fine print and even if you read through all of it there's industry jargon and if you try to ask the mortgage broker they seemed more interested in how much they'd make rather than actually, you know, helping you buy a house and maybe, oh, I don't know, make it so you have a decent chance of keeping it?

    OTOH, I just can't believe how many people actually really seemed to believe that rates just wouldn't go up. If they were living in the real world and did realize it, maybe they thought they just wouldn't go up for, say, another 10 years and by that time they'd be rolling in dough and actually *gasp* be able to actually afford their house.

    Buying a house is a huge deal. I'm stunned it seems so many people took it lightly. Although as Bridgette's fiancee demonstrates, even smart people got taken in by unscrupulous mortage brokers.
    "She has written so well, and marvellously well, that I was completely ashamed of myself as a writer...But this girl, who is to my knowledge very unpleasant and we might even say a high-grade bitch, can write rings around all of us who consider ourselves as writers"

    Ernest Hemingway on writer, aviation pioneer and horse trainer Beryl Markham


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    Default Re: info about refinancing... made a bad decision

    Quote Originally Posted by tampafldancer

    The problem is i want to move and quit dancing. I'll look into my paperwork again, but im pretty sure it was a 20 percent penalty.. If i sell it is waived but if i refinance it is not.

    .
    From my experience in escrow, the paperwork generally is "if you pay more than 20% of the principal balance within 1 year, you will pay a prepayment penalty of x amount" Typically 6 months worth of interest on the amount over 20% that you paid. Hopefully this is the case with you. Good luck sweetie.
    I believe you Dottie and you have my support

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