vania-janet/multiturn-rag-retrieval-data huggingface dataset:
"Better suggestion: Refinance into a lower rate mortgage. In the US right now you could cut that rate substantially with very little effort, unless you are a bad credit risk. Also: Not all mortgages permit use as a ""line of credit"" without additional fees, in addition to credit card transfer fees. (There is often a different kind of house loan, at a higher interest rate, if you really need that flexibility.) So this idea may not even be possible, or those fees may kill it, even before considering costs and risks on the credit card side. Generally, gimmicks don't work."
"The answer depends on what else you'd do with that 2%. But first, let's look at some actual numbers. For simplicity's sake, let's say you have a £100k mortgage outstanding, your payment is £1000 per month, and you want to pay £1000 extra per month. 2% interest, compounded monthly for simplicity, so .02/12 = .00167% per month. (Your interest is probably compounded daily, but this simplifies the math and isn't too far off of it.) If you don't pay it off early, then first month, you'll owe £100167, minus £1000, so £99167. Second month, £99332 after interest, then £98332 after payment. So on and so forth. After 24th month (2 years), you'll owe £79613 after that 24th payment. So you've paid off £20,000 of balance, at the cost of £24,000; total interest paid, £3,613. If you do pay off another £1000, so you put a total of £2000 in per month, which is penalized (.02*1000=£20) each payment, for a total of £48,000 paid over the 24 months. After that 24 months, you have a balance of £55,637, so a bit over £44k paid off, at the cost of £48k; total interest and fees paid, £3,637. So, at the end of the 24 month period, you've paid an extra £24 in interest/fees than you would have otherwise. You of course have a lower loan balance at the end, but you haven't saved any money overall, and if you're just refinancing at this point into a new loan, you're no better off (and very slightly worse off), even assuming the money will just sit in your bank account and do nothing. I think with daily compounding interest it will be around the same or slightly better, but it's not a significant amount. Now, there is a third option, perhaps: pay £24000 (so after penalty, £23,520) on the first month.
Check with you local bank where you have an account. Sometimes they can offer a discount that results in a good rate.  I just refinanced a month ago with Bank Of America and their rates were very competitive.  What set them aside from the rest was their low closing fees. Otherwise I would shop around on bankrate.com and it will show you results of both local and online mortgage brokers.  It will list the rates and expected fees.  The also list an average national rate so you can compare the rate you are considering and see if there could be a better deal elsewhere.
Think of your mortgage this way - you have a $130K 16 year mortgage, at 6.75%.  At 4%, the same payment ($1109 or so) will pay off the loan in 12.4 years. So, I agree with littleadv, go for a 15yr fixed (but still make the higher payment) or 10 yr if you don't mind the required higher payment. Either way, a refinance is the way to go.  Edit - My local bank is offering me a 3.5% 15 yr loan with fees totaling $2500. For the OP here, a savings of 3.25% or first year interest savings of $4225. 7 months to breakeven.  It's important not to get caught up in trying to calculate savings 15-20 years out. What counts today is the rate difference and looking at it over the next 12 months is a start. If you break even to closing costs so soon, that's enough to make the decision.
This is not an especially exotic transaction, so the loan officer should be able to direct you if they accept such deals and what their conditions are for such arrangements. On the upside, many lenders still treat the LTV% to calculate their rate quote the same no matter where the ""down payment"" is coming from, with the lower the LTV the lower the interest rate they'll be willing to quote. Some lenders might not, and some might require extra closing fees - you may need to shop around. You might also want to get a comparative quote on getting a direct mortgage on the old property and putting the cash as down payment on the new property, thus keeping the two properties legally separate and giving you some ""walk away"" options that aren't possible otherwise. I'd advise you to talk with your lenders directly and shop around a few places and see how the two alternatives compare. They might be similar, or one might be a hugely better deal! Underwriting requirements can change quickly and can vary even within individual regions, so it's not really possible to say once-and-for-all which is the better way to go."
"Taking out your equity when refinancing means that you take out a new loan for the full value of your house (perhaps less 20% as a down payment on the new mortgage, otherwise you'll be paying insurance), pay off your old lender, and keep the rest for yourself. The result is much the same as using as a HELOC or home equity loan (or a second mortgage), except it's all rolled into a single new mortgage. The advantage is that the interest rate on a first mortgage is going to be lower than on HELOC or equivalent, and the equity requirements may be lower (e.g. a HELOC may only let you borrow against the amount of equity that exceeds 25% or 30%, while a new mortgage will require you only to have 20% equity). This is especially attractive to those whose homes have appreciated significantly since they bought them, especially if they have a lot of high-interest debt (e.g. credit cards) they want to pay off. Of course, rolling credit card debt into a 30-year mortgage isn't actually paying it off, but the monthly payments will be a lot lower, and if you're lucky and your home appreciates further, you can pay it off fully when you sell the property and still have paid a lot less interest. The downside is that you have turned unsecured debt into secured debt, which puts your home at risk if you find yourself unable to pay. In your case, you don't yet have even 20% equity in your home, so I wouldn't recommend this. :-) Equity is simply the difference between the amount you still owe on your home and the amount you'd get if you were to sell it. Until you do sell it, this amount is tentative, based on the original purchase price and, perhaps, an intervening appraisal that shows that the property has appreciated. That is really all that it is and there's nothing magic about it, except that since you own your home, you have equity in it, while as a renter, you would not. It used to be (decades ago, when you needed 20% down to get a mortgage) that selling was the only time you'd be able to do anything with the equity in your home.
Last example: let's say, hypothetically, that you bite at current interest rates, and lock in a rate just above prime at 4%, 3.5% down, seller pays closing, but then in two years you get married, change jobs and have to move. Let's further suppose an alternate reality in which, after two years of living in an apartment, all the same life changes happen and you are now shopping for your first house having been pre-approved at 5%. That one percentage point savings by buying now, on a house in the $200k range, is worth about $120/mo or about $1440/yr off of your P&I payment ($921.42 on a $200,000 home with a 30-year term). Not chump change (over 30 years if you had been that lucky, it's $43000), but it's less than 5% of your take-home pay (month-to-month or annually). However, when you move in two years, the buyer's probably going to want the same deal you got - seller pays closing - because that's the market level you bought in to (low-priced starters for first-time homebuyers). That's a 3% commission for both agents, 1% origination, 0.5%-1% guarantor, and various fixed fees (title etc). Assuming the value of the house hasn't changed, let's call total selling costs 8% of the house value of $200k (which is probably low); that's $16,000 in seller's costs. Again, assuming home value didn't change and that you got an FHA loan requiring only 3.5% down, your down payment ($7k) plus principal paid (about another $7k; 6936.27 to be exact) only covers $14k of those costs. You're now in the hole $2,000, and you still have to come up with your next home's down payment.
So, my loan has about a 4.8% interest rate, payments about 450 a month for 10 years, so no, I'm not particularly worried about my loans. Rates are low and refinancing is easy once you're a couple years out of college.
"While the other people have tried to answer your question as thoroughly as possible, I fear they are entirely incorrect in answering your question itself as it stands. The answer is that there are no usual terms. There are a handful of different options coming out now for this exact scheme. Examples include the UK Governments ""Help To Buy"" scheme. Accomodation is offered at a normal rate, and a small portion of the rent is set aside each month. At the end of a fixed period, that money becomes a deposit which the letter hands over to a mortgage provider who accepts it as a deposit. This might well be a terminology thing, since the other scenario which people described falls into the same name you've used. That scenario is where the investor who owns the property is considering sale of the property, and is happy to negotiate a price up front for the next year. Usually the rent and price is higher than the market rate because if the market goes well over the next year they could end up out of pocket. Putting that into perspective, over that year they are gaining their $1,000 a month or so, but having $100,000 invested means a return of 12%. If the property value is over $250,000 which I believe to be more likely, they are achieving a return of (I think) 4.8%. That's not a bad rate, by any means, but realistically they are losing a bit more for maintenance, and they could be making more from their money. If the market were to go up in that time by more than 4.8% (my house, for instance, increased in value by over 15% in the last 12 months), they are making a substantial loss since you are getting a house at 15% below the market rate. The total works out to a 10.2% loss for them. Note that I don't know the US housing market at all, I'm speaking mostly from my experience of the market here in the UK. This is what I hear, what I see, and what I've played. To summarise a bit: Make sure you check your terms before signing anything."
Regarding the mortgage company, they will want to know where the down payment came from, and as long as you are honest about it, there is no fraud. It's possible that the mortgage company may have some reservations about the deal now that they know where the down payment came from, but that will depend on the size of the deal and other factors. If everyone involved has decent credit, and this is a fairly standard mortgage, it will probably have no impact at all.
It would help if we had numbers to walk you through the analysis. Current balance, rate, remaining term, and the new mortgage details.  To echo and elaborate on part of Ben's response, the most important thing is to not confuse cash flow with savings. If you have 15 years to go, and refinance to 30 years, at the rate rate, your payment drops by 1/3. Yet your rate is identical in this example.  The correct method is to take the new rate, plug it into a mortgage calculator or spreadsheet using the remaining months on the current mortgage, and see the change in payment. This savings is what you should divide into closing costs to calculate the breakeven. It's up to you whether to adjust your payments to keep the term the same after you close.  With respect to keshlam, rules of thumb often fail. There are mortgages that build the closing costs into the rate. Not the amount loaned, the rate. This means that as rates dropped, moving from 5.25% to 5% made sense even though with closing costs there were 4.5% mortgages out there. Because rates were still falling, and I finally moved to a 3.5% loan. At the time I was serial refinancing, the bank said I could return to them after a year if rates were still lower. In my opinion, we are at a bottom, and the biggest question you need to answer is whether you'll remain in the house past your own breakeven time. Last - with personal finance focusing on personal, the analysis shouldn't ignore the rest of your balance sheet. Say you are paying $1500/mo with 15 years to go. Your budget is tight enough that you've chosen not to deposit to your 401(k). (assuming you are in the US or country with pretax retirement account options) In this case, holding rates constant, a shift to 30 years frees up about $500/mo. In a matched 401(k), your $6000/yr is doubled to $12K/year.  Of course, if the money would just go in the market unmatched, members here would correctly admonish me for suggesting a dangerous game, in effect borrowing via mortgage to invest in the market. The matched funds, however are tough to argue against.
"You can't get a HELOC, to the best of my knowledge, without actually ""owning"" the house. If you get an 80% mortgage (of the purchase price - not the appraised value, btw), you still need 20% as a down payment. Once you own the home, you can apply for a HELOC ... presuming you have enough equity (eg, the purchase price is $40k less than the appraised value). We haven't looked at the norm, at least where I live, of 5% down for a traditional mortgage and 3.5% for an FHA (which your question touches on). If you can do 5% down, on a $1,000,000 mortgage you need $50,000 on the day of closing. If the home is worth (ie appraises for) $1,250,000, you're getting 20% of the house ""for free"". Presuming the bank(s) will go for it, you could likely then open a HELOC for as much as $250,000 (again, depending on individual lender rules). tl;dr: If you don't have the money ready on the day of signing (via seasoning, if it is a loan/gift, or because you have been saving), you cannot afford the house. To clarify from comments with the OP, I am in no way speaking to the buyer's ability to afford the monthly payments - this is only about affording the initial costs associated with the home buying process (down payment, closing, whatever else the bank(s) require, etc)."
"You can shop for a mortgage rate without actually submitting a mortgage application. Unfortunately, the U.S. Government has made it illegal for the banks to give you a ""good faith estimate"" of the mortgage cost and terms without submitting a mortgage application. On the other hand, government regulations make the ""good faith estimates"" somewhat misleading. (For one thing, they rarely are good for estimating how much money you will need to ""bring to the closing table"".) My understanding is that in the United States, multiple credit checks within a two-week period while shopping for a mortgage are combined to ding your credit rating only once. You need the following information to shop for a mortgage: A realistic ""appraisal value"". Unless your market is going up quickly, a fair purchase price is usually close enough. Your expected loan amount (which you or a banker can estimate based on your down payment and likely closing costs). Your middle credit score, for purposes of mortgage applications. (If you have a co-borrower, such as a spouse, many banks use the lower of the two persons' middle credit score). The annual property tax cost for the property, taking into account the new purchase price. The annual cost of homeowners' insurance. The annual cost of homeowners' association dues. Your minimum monthly payments on all debt. Banks tend to round up the minimum payments. Also, banks care whether any of that debt is secured by real estate. Your monthly income. Banks usually include just the amount for which you can show that you are currently in the job, with regular paychecks and tax withholding, and that you have been in similar jobs (or training for such jobs) for the last two full years. Banks usually subtract out any business losses that show up on tax returns. There are special rules for alimony and child support payments. The loan terms you want, such as a 15-year fixed rate or 30-year fixed rate. The amount of points you are willing to pay. Many banks are willing to lower your ""note rate"" by 0.125% if you pay 0.5% up-front.
Applying for a mortgage is a bit of paperwork, but not too bad of an experience. Rates are pretty tight, if one lender were more that 1/4% lower than another, they'd be inundated with applications. Above a certain credit score, you get the 'best' rate, a search will show you the rates offered in your area.  If you are a first time buyer, there are mortgages that might benefit you. If you are a vet (for non-native English readers, a veteran who served in the US armed forces, not a veterinarian, who is an animal doctor) there are mortgages that offer low-to-no down payment with attractive rates.  Yes, avoid PMI, it's a crazy penalty on your overall expense of home purchase. If banks qualify you for different amounts, it shouldn't be a huge difference, a few percent variation. But, the standard ratios are pretty liberal even today, and getting the most you'd qualify for is probably too much.  Using the standard 28/36% ratios, a bank will qualify you for 4X your income as a loan. e.g you make $50K, they'll lend you $200K. This is a bit too much in my opinion.  If you come up short, you are really looking to borrow too much, and should probably wait. If you owe a bit on loans, it should squeeze in between those two ratios, 28/36. But I wouldn't borrow on a credit line to add to the purchase, that's asking for trouble.
Let's look at the logical extreme. Two people get a house, no money down, 10 year mortgage. One moves out the day after the closing, and the gal left pays the full mortgage. Why in the world would the one who left be entitled to a dime?  You offer no information about the downpayment or amount paid during the time both lived there. That's the data needed to do any math.
By rounding my house payments up to the nearest $50.00, my 30 year mortgage was paid off in 7 years.  Initially, my mortgage payment was roughly $600, $50 going to principal and $550 going to interest (banker's profits). By paying $650, I was actually doubling the amount I was paying on principal.  Since interest is computed as a function (percentage) of the outstanding principal balance, the amount of my fixed payment that went to interest decreased each month, and the amount that went to principal increased. In 7 years I owned my home free and clear, and started putting the money I had been putting into the mortgage payments into investments. A rule of thumb I have discovered is that it takes half the time to save money to meet a goal that it takes to pay off the same debt.
I used to own a few investment properties, so I'm pretty familiar with this.  As MrChrister mentions, lenders see investment mortgages as higher risk. People who fall into financial trouble are much more likely to let their investment properties go than their personal residence.  Consequently, the interest rates and downpayment requirements are generally higher. Typically a mortgage for an investment property will require 20% down, vs. as low as 3-5% down for a personal residence.  With excellent credit and some shopping around, you could probably do 10% down.  Interest rates are typically about a half-percent higher as well. You'll also find that the more investment properties you have, the harder it becomes to finance new ones.  Banks look at debt-to-income ratios to determine if you are over extended.  Typically banks like to see that your housing payments are less than 20% or so of your income.  However, with rental properties, housing payments generally account for far more than 20% of your rental income.  Other income you have can offset that, but after buying 2-3 houses or so, your DTI generally creeps into the range where lenders are uncomfortable lending to you anymore.  This is why you'll find that many rental properties are bought on land contracts with owner financing rather than with mortgages.
"Check the terms of your mortgage. If you are in a fixed-term mortgage, you can likely ""over-pay"" a fixed amount of the capital each year: typically 10%. Eg if you owe £300,000 on the mortgage, you can pay off an additional £30,000 this year. Next year you'd owe something like £260,000 so could pay off £26,000. You'd need to check the terms of your mortgage to see what this limit is. You can actually pay off more than this, but would become liable to pay an ""early repayment fee"" or similar, which is usually something like 3-5% of the mortgage amount. Note that this usually means you would need to re-finance the mortgage anyway If you are not on a fixed-term mortgage than, in the UK at least, you are pretty much free to over-pay as much as you would like or refinance the mortgage. If you are in a fixed-term mortgage, it is usually better to simply over-pay by that maximum allowed amount until the fixed period ends, at which point you can re-finance onto a mortgage that allows higher overpayments. This isn't always the case, though, depending on your interest rate, how high the early repayment charge is, and how much you are able to over-pay. At the very least, you're going to need to do some sums! If you do choose to over-pay up to the limit, then you'd want to over-pay as much as you can at the start of the year (ie don't divide the over-payment by 12, pay it all as early as you can) to reduce interest payments. Then once you hit the limit, put the rest into a savings account: once you are out of the fixed term you can then pay the rest as a lump sum when refinancing."
"Based on your information...  The house is $130,000 all in (this might not be the case)  Your payment term is 30 years.  Your interest rate is about 7.35%.  Your payments are about $895.66  Your total payments will total $322,438.95  That's not a very good interest rate for a mortgage, but this might be due to poor credit or limited credit history, too low income, or too much home value being financed (or a combination of the above and other factors).  Northern Alabama may not specifically be higher interest rate: it might, honestly, just be you.  The reason that you're paying $320,000 is that you're taking $130,000 from a bank and promising to pay it back with interest. Keep in mind, that's over *thirty years.* That's a LONG time. And the bank needs to earn enough interest to combat inflation (roughly 2% annually, generally). During that time, the bank *can't* invest that money elsewhere, return it to depositors, etc.  A good rule to keep in mind is the ""rule of 72."" It's a simple trick to determine, based on an interest rate, how quickly the value of something will double (in this case, the value of your loan payments). If your interest rate was exactly 7.2%, this method would calculate 10 years until doubling.   In your case, 72 / 7.35 = 9.7959 years.   Now, you're paying off your loan simultaneously, which lowers your interest over time, so your payments total 2.48x of loan value at origination. That still sucks, but remember, it's over a loooooooooooooooooooooooooooooooooong time."