Home refinance question...

A friend is refinancing her house. She is looking to lease her home and will be moving to another state to be closer to family. The cash out will be used to purchase a car outright (does not want a car payment). The rest of the cash back will be used as a down payment on another home once she moves and for a buffer until she gets settled out there.
Option "A" got approved today. It is an interest only loan. Option "B" is the alternative.

Option "A" 6.89% interest rate on 1st and 2nd loan. Payment is $1,630 monthly with taxes and insurance included 10/20 interest only, no prepayment penalty. Fxd interest for 10 years $25,00 cash out

Option "B"

7% on 1st 8.625% on 2nd. Payment is $1,591.00 Not sure if taxes are included. 30 yr. fxd fully amortized $18,000 cash out

Any advice or opinions would be appreciated.

Thanks!

Val

One question: How does the $7,000 difference in the cash out effect her? 



Also its pretty critical that we know if the Option B includes taxes and insurance.

13/14 thousand will be used to purchase a car. The rest will be used as a down pmt on another home and to help set her up in Washington State.

The 7k difference will be the down pmt on the new house.

Assume the second option includes tax and insurance.

Okay, one more question: How much will she be able to rent her current place for?

She will rent the house for $1,400

Thanks

AZ-



So she's upside down either $191 per month (Option B) or $230 per month (Option A).  Can she afford to make up the difference on her own?


I think the decision is easy, take the first one. The second doesn't include taxes and insurance because the interest rate is higher and the payment is lower and it's full amortized. Take the interest only. Interest only doesn't mean you have to pay interest only, it's an option. If her cash flow is good, she can make the larger fully amortized amount so she will have almost the same as a regular mortgage, other than the 10 year fixed.

If she doesn't have a realtor in Washington I'd love the opportunity to help out with the home search.

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