Expert Q&A Archive
How can I change a variable mortgage rate to fixed rate if the request is denied by my bank?
Hi. I have a 7% mortgage and I also have a home equity line of credit at a variable interest rate with Citibank. I've been trying to get Citibank to move it into a fixed rate, and they denied that request. What can I do? Would I qualify for a modification loan program?
Connie K. Marmet:
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Refinancing essentially creates a new loan, so the process is no different from the first time you applied for a mortgage. There are several factors that may result in a denial, so try to find out the basis for CitiBank's refusal to refinance.
The denial could be based on the appraised value of your house. It may have dropped below the point that a new loan could be issued. If your equity is less than 20% of the appraised value, Private Mortgage Insurance (PMI) will be required. It adds significantly to the cost, frequently offsets savings, but it is tax deductible. You can avoid Private Mortgage Insurance by paying down your loan so that you have 20% equity, an option most people cannot do.
If you think the appraised value of your home is too low given sales prices of similar homes in your neighborhood ([based on] square footage, age, condition, etc.), you can appeal the evaluation. Ask CitiBank what their appeal process is.
The amount varies with lenders, but at some point if your equity is too low, refinancing will be refused. There are programs to help owners whose equity has dropped below outstanding loan amounts. You may want to ask CitiBank about them if you are in this situation.
Note that if your equity has dropped and you refinance, your line of credit may drop or be eliminated all together.
The other common reason for denying a refinancing is your credit score. If this applies in your case, ask CitiBank to discuss the issue and what you might do to mitigate it.
If neither equity nor credit score is the problem, ask CitiBank to tell you what it is. If they refuse, ask about the appeals process.
If you are unsuccessful with CitiBank, you could try to refinance with another institution. It is important to know the grounds on which you were refused before you apply elsewhere, as the lending process has become much tighter and more consistent among institutions. Every time you apply for credit, your credit score is requested from the rating agencies (Equifax, Transunion, etc.) Multiple requests for scores is a factor in establishing the score itself and can reduce your rating.
Gail V. Marquet:
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I seriously doubt Citibank will do anything for you. You might look into refinancing both the mortgage and the HELOC [home equity line of credit] with a credit union at a fixed rate. Mortgage rates are on the rise, but hopefully you can reduce your interest rate on your first mortgage if you are able to act quickly.
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I have not seen the note for your loan, but most likely, Citibank is not required to change your note to a fixed rate.
Many banks, Citi included, are making efforts to help homeowners stay in their property. If you are experiencing financial hardship you may qualify for a loan modification.
The quickest and easiest way to apply for a loan modification is to call your lender and tell them you would like to apply for a loan modification. Most lenders will do the application with you over the phone. Have your income and expenses ready. They are typically lowering rates for 5 years to 31% of you income; however, there are a variety of variables that go into
the calculation. Good Luck!
Martina A. Jimenez:
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If you want to refinance and have both your first and second mortgage in one loan, you have to contact your 1st mortgage company and ask them to check if you qualify to refinance. Based on the market value of your property, the [interest] rate [on your loan], and your debt-to-income ratio, you may or may not qualify for a refinance.
You can also check with a mortgage broker to see if you qualify for a refinance, and they can show all the lenders for you based on the above factors.
If you cannot afford to make the payments any more, then talk to your mortgage lenders (1st and 2nd mortgage) about getting a loan modification. There is a process that you must go through to qualify, which may include having to be late on your loan before you could be considered!
Before the loan modification, try to see if you can refinance! Being late on your payment will affect your credit rating. Best regards.
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Working with your mortgage company can be an overwhelming process. Generally speaking, most mortgage companies are only going to consider modifying your existing mortgage if you are experiencing some kind of financial hardship. At the same time, though, they want to be sure that if they do modify the mortgage it will be sustainably affordable for you in the future. Many borrowers that seek a modification before they have fallen behind find it very difficult to work with their mortgage company, because often falling behind is the most effective gauge of a person's hardship. I would recommend calling a HUD certified housing counseling agency so that they can help you review your situation, and give you suggestions on working with your mortgagee company.
It's impossible to determine if you would qualify for a loan modification without knowing a lot more details about your specific situation, and working directly with your lender. You would certainly benefit, however, from having an experienced housing counselor review your situation, and help you determine the best course of action, and help you navigate the process.
Start getting organized now. The most effective housing counseling sessions happen when a consumer really understands the financial situation for their household, and arrives to their appointment with their entire intake documents completed, and organized. Good luck!