I bought a house last January--5% down and two loans. the large loan
is a 7/1 ARM and the small loan is adjustable. Obviously I'd like to
combine the two loans into one loan and I know I've built some equity
in the california home market. So I inquired about refinancing at a
local credit union and the loan agent said I need to wait until I've
owned the house for atleast one year because of the appraisal process.
He said that my house's sale price is still being used as a baseline
for other houses being appraised in the area and I can't have it
re-appraised yet. These aren't his exact words, but its the basic
concept. does this sound right? loan rates keep going up and house
prices are starting to go down in the bay area and I'd like to refi
before it is no longer beneficial.

any comments would be appreciated.
thanks

In article . com,
amorica wrote:

I bought a house last January--5% down and two loans. the large loan
is a 7/1 ARM and the small loan is adjustable. Obviously I'd like to
combine the two loans into one loan and I know I've built some equity
in the california home market. So I inquired about refinancing at a
local credit union and the loan agent said I need to wait until I've
owned the house for atleast one year because of the appraisal process.
He said that my house's sale price is still being used as a baseline
for other houses being appraised in the area and I can't have it
re-appraised yet. These aren't his exact words, but its the basic
concept. does this sound right? loan rates keep going up and house
prices are starting to go down in the bay area and I'd like to refi
before it is no longer beneficial.


You want to refinance or you want to refinance AND TAKE CASH OUT? It
sounds like the latter. If the former, then the agent is full of it,
because the house has already been appraised at/near the sales price.
If the latter, then it makes sense.


Dimitri

"amorica" writes:
I bought a house last January--5% down and two loans. the large loan
is a 7/1 ARM and the small loan is adjustable.

Are you paying for private mortgage insurance currently? Is that the
concern? Or are you looking to get a longer fixed rate term on a
bigger portion of the loan? Or are you thinking you'll be able to
improve upon the rate at which your 7/1 ARM?

If this is mostly motivated by the last concern, I'm not sure your
timing is favorable -- 30yr fixed is gonna run you at least 6% now,
fwiw. Here in Chicago, we're seeing 15month highs fueled on the long
bond's strength since Greenspan dropped the bomb on the market and the
market got the successor they wanted. With the Fed talking about
little else but inflation recently, though I think you're wise to know
that the trend is likely to continue upward on mortgage rates before
it recedes.

Obviously I'd like to combine the two loans into one loan and I know
I've built some equity in the california home market. So I inquired
about refinancing at a local credit union and the loan agent said I
need to wait until I've owned the house for atleast one year because
of the appraisal process. He said that my house's sale price is
still being used as a baseline for other houses being appraised in
the area and I can't have it re-appraised yet. These aren't his
exact words, but its the basic concept. does this sound right?

That sounds semi reasonable since appraisers to benchmark based on
recent sales in teh area, and the weight of your particular home's
recent purchase price does factor heavily. But, it all comes down to
what a given appraiser assigned to your proposed new loan says,
however.

The other thing to know is that credit unions seldom have anything
near the best rate you can get on a home mortgage, at least in my
experience in TX and IL. I'm a big fan of credit unions for other
products, but they just can't seem to compete in mortgage field vs
ethical mortgage brokers. There are tons of ways to get screwed on a
mortgage, so scrutinize those good faith estimates with someone whose
done this a fair amount. So you might be able to save even if you
can't substantially improve your LTV.

I'd recommend asking your financially savvy friends for a referral to
a good mortgage person, and then talk to that broker about your
situation. Try to avoid paying an application fee--the ethical folks
don't require them if they're willing to take your application.
However it would be reasonable in an iffy situation for them to want
you to pay an app fee equal to the cost of running your credit and
what an appraisal would cost if the odds don't look good.

Then, see what sort of rate they can offer you after taking down your
credit info and salary and assets. The loan app they whip up will be
suject to appraisal. And that's where the rubber will meet the road
for your circumstance. If the appraisal comes back with teh
appreciation you're hoping for, maybe you can get into a happier LTV
(Loan to Value) situation.

loan rates keep going up and house prices are starting to go down in
the bay area and I'd like to refi before it is no longer beneficial.

Then you're seeing a very different trend than what we've seen in
Chicago where the 30yr fixed rates have recently jumped to 15month
highs:
http://www.foxnews.com/story/0,2933,173729,00.html

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

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. 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

"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.



--
Todd H.
http://www.toddh.net/

(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/

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.

I am not paying PMI--hence the two loans. I put 5% towards the down
payment and the small loan covers the rest of the standard 20% down
payment.

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.

thanks again,
Matt

In article . com,
amorica wrote:

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. 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.


Are you taking any cash out in the refinance? You didn't answer that.
It sounds like the problem might be that you need the new appraisal
to prove that the combined loans are now only 80% (or less) of the
property's value? Is that right? I can understand why the lender would
need a new appraisal then. If they won't do it, why not find one that
will (assuming the appraisal is high enough)?


Dimitri

amorica wrote:
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.

Do they have to be interest only loans? Can you afford to pay some extra
principal on the "small" loan each month? You're not going to get the
equivalent of 7.75% in a savings account right now, and by the time
you do, the rate on the loan will be even higher.

"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/

thanks again for the input, very helpful

Todd H. wrote:
"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/