The Housing Bust Hits Home
Inspired by FiveCentNickel, I looked into refinancing both our loans into a single 30-year mortgage. If you recall, we’re 100% financed on our home with 2 loans. The first (80%) is an interest-only, 5/1 arm that’s up in November, 2009, while the second is a 15-year balloon. The plan was to combine the two mortgages into a single loan and lock in a fixed rate while rates are currently low.
I put out a few feelers and spoke with some brokers to see what options I had. We ran into a problem right off the bat though, as I need the home value to still be at the tax assessment rate to seal the deal. Otherwise, I need to pay PMI, which negates any benefits of refinancing. The question was whether my home still appreciated $80,000.
I didn’t proceed with a formal appraisal to get this answer. The last time I looked into refinancing, about a year ago, the appraisal barely squeaked by at the assessed value. Therefore, I could only assume that the home value wouldn’t pass the test this time around. We’re not in a rush right now to refinance, and I decided to wait a little to see what the fed does this week. Maybe rates will drop a little lower?
You may ask “Why aren’t you paying down your mortgage more?”. The answer is because we have so much non-home debt. However, that second mortgage’s rate is by far our highest interest rate, but then again, we get about a third of our interest back in taxes each year, so the rate drops down to the middle of the pack compared to the other debts.
So until we pay off higher debt loans, we’re only paying the minimum on the mortgages and keeping an eye on rates and the market. Who knows, we may be deciding to leave the D.C. area in the next 2 years anyway 😉
You might be in luck. Another rate cut was announced today.
From FederalReserve.gov:
“Press Release
Federal Reserve Press Release
Release Date: January 30, 2008
For immediate release
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.”
Dang, that’s what I get for not having internet access during the day at my job anymore. However, the headline seems to be buried among all the political articles and the latest about Britney.
Enjoying this blog – however your statement about PMI negating the value of a 30 year refinance seems strange. I would suspect that you would want to get out of that balloon payment coming due in 18 months or so, PMI or not! Or perhaps you’ll move out of the area. Balloon loans give me panic attacks! CBB
I looked into a refinance myself today. Mortgage companies quite busy. I have a 5.875 on my 1st and a adjustable rate on my 2nd that seems to just keep going up. Did a 80/15/5 loan originally. I want to combine both loans into one 30 year fixed but to do so, it looks like my new rate would be 6.125 and my monthly payment would only go down about $100, this is after paying 3,000 in closing costs and resetting back to 30 years after having been paying on it for 5. Based on my fuzzy math skills, it seems to me that it would take 3+ years before I even see any real benefit. The new drop from today hasn’t really gone into effect yet, so I’m planning on looking into it again in a few weeks to see if things improve. I believe it takes a bit of time before these drops get reflected.
the housing market was overvalued in the last few years.
this is only good news, because it will bring houses for sale back to normal prices instead of the overinflated values which dominated the market the last decade.
Another thing you can likely do is redo only the first into a fixed loan; this may give you past the uncertain point, and while it may cost now, the terms of your loan may make it cost less in the future.
Your call.
I’m 6 months into a 2 year fixed rate, and the housing market in the UK is just softening now. It’s occurred to me that in 18 months time when I want to refinance, I may not have enough equity to do so. 🙁
You may not be able to move in two years. You’ll need to pay off the loans when you sell, and if you’re upside-down, you’ll need to make up the shortfall in cash. If not, take off your coat, because you’ll be staying awhile.
I would be in a rush to re-finance if I were you.
I would also refinance, that balloon payment doesn’t look so bad when it’s far off but as it get’s closer the scarier it will look.
sounds like what I got.
just wait it out a few years…i know ez to say.