Refi to pay off Ch13?

[JellyBeany]

I am married. My name is on the BK but not my husband's. Housing prices in our area have skyrocketed over the last few months.

I am in a 100% Ch13 plan. I have paid 17/60 installment payments, in full and on time always.

My husband is looking into doing a cash-out refi to pay off the Trustee. We are in regular communication with the attorney on this matter.

The attorney says it's no problem at all to pay off early since we are in a 100% repayment plan.

Our mortgage payment would go up, naturally, BUT it would go up by an amount far less than our monthly Trustee payment.

So, I can't really see any reason NOT to do it. It would feel like a huge raise! We could save up and move forward with some automotive and dental expenses that we have been putting off.

Is there any reason NOT to do this? Is there some hidden landmine?

[justbroke]

If you have run the numbers, then there is no reason to not do this. The only thing is that you're financing your bankruptcy through a new 30 year mortgage. (I assume it will be a new 30 year mortgage.) But, with the interest rates and the housing boom, this could be a good thing.

[sophieanne]

I think it’s great if you’re able to pay off early, however… I can’t help but thinking that if you continue paying you’ll be done in approximately 3 1/2 years… yet if you refinance, although it’s a lower interest rate/payment .. You’re taking Debt That would be done and over with In a couple years and now that debt Will be with you for up to another 30 years.. and it’ll be secured debt. Personally, I would want the short term pain for a much longer gain, The extra you pay on your mortgage could be in your pocket at the end of the 60 months. But that’s just my opinion. You make the choice that’s best for you!
p.s. - I paid off my 100% plan 1 year early..because I saved up the money to do so. Lived very frugally for 4 years.

[flashoflight]

Assuming this is a FHA loan and you are required to be on the note due to California community property:

1) You have to pay upfront MIP on the WHOLE loan amount, not just the amount of unsecured debt.
2) You have to pay monthly PMI on the WHOLE loan amount, not just the amount of unsecured debt.
3) You will have to cashout an additional amount to pay your additional legal fees for the motion to refinance. I don't believe you can avoid going on the note in California because it is a community property state even with a quitclaim deed. Otherwise your husband can do a conventional cashout refi on his own income and debts.
4) You will have to pay interest on the unsecured for 30 years instead of paying no interest for 3.5 years. A small portion of the interest on the new loan is there to pay for your closing costs. There is no such thing as a free lunch.
5) You can offset some or all of the above if the current mortgage interest and current PMI is more than the new interest plus new PMI.
6) Your appraisal is likely to be 5-10% short of what Zillow says. Your appraiser knows this is a refi, so he is going to knock you down more vs. a purchase transaction. Given your comment about housing prices rising in your area of California, expect to be knocked down.

You can refi into conventional two years after you are discharged, but there is no guarantee rates won't go a lot higher than FHA interest + PMI.

If rates on the current mortgage are higher, run the numbers with a FHA rate and term refinance.

This transaction turns pre-marital separate property into community property if it isn't community property already.

This doesn't sound like a slam dunk to me, especially if the unsecured debt is a lot smaller than the current mortgage balance.

[JellyBeany]

Thank you for your thoughtful responses, all of you.

It is not currently and will not be FHA.

I am on the deed but not the note. My attorney has stated multiple times in writing that we don’t have to file any paperwork with the court or get judicial approval to refi because my husband is NOT a party to the BK and the refi would be in his name only.

PMI is not an issue because even with the new loan amount our LTV is still <80%.

Our mortgage broker says no appraisal is required due to the extremely high prices of comps. So... it’s still not a done deal and we are still in the info-gathering stage.

[flashoflight]

You need to ask the lender whether you have to be on the note in California.

[JellyBeany]

Since we have already done several refis before I filed Ch13, and I wasn't on any of those notes, I think it's safe to assume I won't need to be on the next one.