Thursday, January 22, 2009

House Refinancing

One of our New Year's Resolutions is to refinance our house. We have an ARM (Adjustable Rate Mortgage), which will adjust in August AND an interest only HELOC (Home Equity Line of Credit) which will come due in August and will need to be paid off in full, or refinanced.

Here's the run down:
The HELOC comes from our house purchase. We did not have the full 20% downpayment, and so financed 10% of the downpayment with the HELOC instead of paying mortgage insurance. The payments on the HELOC were cheaper than insurance, and we've had the opportunity to make them even cheaper by paying it down bit by bit. We are almost halfway paid off by now.

The ARM comes from our thoughts that we wouldn't be in the house long. Without getting into details about jobs and education choices and such, it's funny how life throws you curves! We are happily staying now... but have run out on our ARM.

IF (BIG if) our house appraises for what we bought it for, we will own about 20% of our house. BIG if. Of course, we have massively improved the property since then... new kitchen with maple and granite, new siding (well, siding removed... but brick is SO much nicer), fenced yard and stone patio, front yard landscaping, etc. We are hoping that those might offset to some extent the probable drop in housing prices.

Here Was Our Plan:
Our plan was to refinance into a 15 year mortgage. I found this excellent calculator for figuring out the cost and benefits of switching an ARM into a fixed rate mortgage. It helped me sort out the options. I also used the loan quoting service on Zillow.com... I was pleased with the quality of the quotes I received from several of the respondants. The plus is that no one has YOUR info until you choose to give it to them, unlike other loan quote sites.

After reviewing the information, we realized that it may not be the best time for us to refinance. The odds that we can pass the 20% barrier are not spectacular, and coming up with $3000 for closing costs after we've been working so hard to pay off the HELOC this year will be tough. If we finance the closing costs, we'll definitely have to pay the insurance... which we don't want to do.

The Current Plan:
We're going to wait, and pay down more principle on the HELOC. Maybe even pay it totally off before it's due. We can weather adjustment on the ARM, as it has pretty strict limits. Even though the rates are at historic lows, it just doesn't make sense for us to do it right now.

Edit:
Additional info... we will likely move in 2 or 3 years when we have children, as there isn't much room for children in our house with the two music studios! That complicates the money issue even more!

6 comments:

NV said...

Good luck on your ultimate path.

Just watch out for that ARM. (I think it really is an appropriate acronym because it's really for that great big arm that will come and wrap itself around your throat if you're not careful!)

I've had a friend or two who've been burned by those things.

fred@opc said...

Good luck! I wrote about our refi situation (post runs tomorrow)... we've taken a pretty sizeable hit in equity which is a little discouraging. Fortunately we were able to get over the 80% LTV.

Have you examined any options for converting to a fixed and just re-upping your HELOC? Sometimes they'll want a little more in terms of up-front costs but it might be worth it to get out of the ARM.

I think this is especially true since we're seeing a monetary policy in the previous and coming administrations that looks like it has the potential to spur pretty big inflation, which will drive rates through the roof.

Jennifer said...

Thanks NV and Fred... I should mention also that we are planning on selling in 2 or 3 years, as we can't have children in this house. (Well... we COULD, but there's no bedroom for them with the two music studios!). That really makes it a hard decision!

Robj98168 said...

All this refinancing talk makes my head spin. Countrywide, wants me to refinance. When I do talk to them I ask them Why? Aren't they happy with the Money I send them now? I just want to pay of the mortgage I have-not refinance into a new 30 year mortgage! I understand about saving money and lower payments, but that hasn't been an issue for me -yet!

Jennifer said...

Robj~ It IS confusing, isn't it! They want to to refinance because they get a LOT of money out of you on closing costs... and then they sell your mortgage to someone else to deal with everything else.

Why S? said...

Jennifer, you could probably have the children in your current house. You just couldn't let them stay.

Good luck with it all. We're thinking about re-fi'ing too. Just cuz.