"amorica" writes:
Thanks again for the info Todd. My large loan (7/1 ARM) is at 5.375%
and my small loan (I say small, but its over 60K) is adjustable and is
up to about 7.75%--it started off at 6%. And these are interest only
loans.

Boy you're in for an uphill battle then cus your first mortage is at a
great rate compared to the 15 month highs we're seeing right now.

If you found a lender willing to do the loan essentially for free
today (i.e these are wholesale rates I'm talking), a traditional 7/1
ARM is going for 5.875 at one major lender plus the .25 adder for
interest only brings you to 6.125% on that rate. So instead of paying
just 5.375% on 80% of your home's value you'll be paying almost .75%
more on all that just to save 1.625% on the 15%. If you weigh those
out
80 * -.75 = -60 (fuzzy units of savings)
15 * +1.625 = +24.375 (fuzzy units of savings)

you end up negative o nthis one. That means you'll be paying MORE
interest (and hence having higher payments) if you refi'd today than
you are presently paying. As it turns out, you'll be giving up your
good rate on the big loan to save a little on the little one.

So, to me that rules out a full "consolidate both loans" refi.

About your only option I see is to go shopping for a better home
equity rate on that small loan, and refi just that loan. You should
be able to do a little better than 7.75%. You should be able to find
a "prime" or a "prime mine .25%" home equity loan out there if your
credit is good. But then again, with over 80% LTV on your house, I'm
not sure. Because for LTV's over 80%, you do tend to get hit with
higher rates as the bank is assuming more risk. I know my HELOC rate
is currently 6.75% at my credit union, but I think that's about due to
bump up at least a quarter point.

The other thing you'll want to verify if you pursue this: check your
home equity loan for an early payment penalty. Many of these products
come with minimums of 1yr or 2yrs to have the account open in order to
avoid a termination fee (ranges from $100-$500). Don't be scared off
by the fee though if you can achieve a rate that will make that fee
pay back in a year or so.

Regarding your options, I will look into #2, #3, and #4. judging by
what other houses have sold for in the area, I'm pretty sure I haven't
built up enough equity to do option #4. Almost, but not quite. I'll
see when I get it appraised.

Given how good your first mortgage rate is in comparison with today's
prevailing rates, you'd be a fool to refinance that big loan right
now.

The only benefit an increase in your home's value will be to you right
now is possibly getting you down into a cheaper home equity loan than
your current one.


On a side note, I'd be nervous as hell if I were mortgaged out to 95%
of my house value though, and doing interest only. You're playing a
risky game there if you're in a volatile real estate market. If
you're in a place that's seen some unstainable growth in house values
and may be vulnerable to a "bubble" bursting... if you house value
should take a crap and fall below your sales price and you have to get
out of your house quickly due to job or family changes, you could be
owing more on the place than you could sell it for. So be careful!

Best Regards,
--
Todd H.
http://www.toddh.net/