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question about refinancing before loan is 1 year old
(Todd H.) writes:
"amorica" writes:
Thanks for both of your input. I should have been more clear in my
original post. I want to refi because my small loan (15% of the total
cost of hte house) is adjustable and keeps rising. My large loan (80%
of the cost of the house) is fixed for 6 more years.
At what rate do you have your large loan?
So, with the equity I've built up, I'd like to use that to help
combine the two loans into one loan. 30 year might be an option,
but possibly a 10/1 or even another 7/1 ARM as well. I don't plan
on being in the house for more than another 5 years or so. thanks
for the info. Matt
I'm not certain, but your reasoning on this may need to be
reevaluated. That your home has increased in value cannot help you in
a rising interest rate market...unless you're paying PMI and looking
to get out of that.
What rates are your two loans presently? Are you paying PMI? If
you're not paying PMI currently, a refi/consolidation at this point is
not likely to save you money because the interest rate has increased a
good deal over the past year. If you are paying PMI, that's where
your increase in equity might be able to help you--you might be able
to lower your LTV ratio and lower or eliminate your need for PMI if
you refi.
Assuming you're not paying for PMI, let's say for ****s and giggles
your house was purchased at $100,000. You have a total of 95,000
borrowed. 15k is at a variable rate, and 80k is locked in for another
6 years at whatever rate you got last year (which is better than
current rates, I'm assuming).
Now, let's say your house is in a really hot market and appreciated
25% in the past year now worth $125k. That's nifty, but who cares?
The trouble is that you still need to borrow about $95,000 if you want
to consolidate your total outstanding debt. And the added problem is
that rates today are worse than they were a year ago.
Your 3 options would be:
1) stick with what you have and brace for the (likely
increasing) rates on your small loan, while feeling happy
that your big loan is locked in at a rate better than what
you'd probably able to achieve if you refi today.
2) refi just the small loan into a longer term home equity
loan. At least your rate will be fixed for some period
then vs a fully variable rate loan that you seem to have
now. The bad news is that that stability comes at a price:
your rate will be higher than what you're paying presently
though (but may be less than what you'd be paying a year
from now. ). If rates jump a bunch in the next year,
you'll feel like a genius a year from now, glad you paid a
premium to get a longer fixed rate term.
3) consolidate both loans into a new 7/1 or 10/1 ARM. You'll
probably find that the rate will be higher than your big
loan is now, but perhaps less than what your little loan
is. But you'll have to do the math to see if that pays off
at all.
Actually I forgot a 4th option. If your equity really were to jump so
dramatically you could refi both loans into a single first mortgage
since 95/125 80%. Whether or not your resulting interest cost would
be less at today's rates vs having the mix of rates your paying at
last year's lower first mortgage rate would come down to what the
actual numbers are. Your mortgage professional should be able to
guide you with this, but be sure to tak into account the roughly $1000
of closing costs you might have to pay (either in increased principal
on the loan, or at closing) in a refi situation. The title work,
appraisal, and whtever costs go to paying your mortgage guy's
commission are guaranteed to cost you something as well, and those
have to be traded off against what if any interest savings you can
achieve.
--
Todd H.
http://www.toddh.net/
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