Refinance/Moving ideas

Pablo · May 6, 2007

Just thinking about something.

Say a person has a home worth $500K. Remaining mortgage is $225K @ 5 7/8%, and a HELOC $25K @ 8%. Don’t know exactly, but say the payments from the two are about $1600.

Let’s say this person is going to move in 1 year or 2 years MAX.

How crazy would it be to refinance the above debt ($250K) to some type of ARM (5/1) or interest only loan? Say the re-fi fees would be very minimal. Interest rates??? The idea is to minimize outgo, at the expense of equity, while saving the difference for improving the next house.

Pablo · May 6, 2007

The rates don't look so favorable.

Bob Woods · May 7, 2007

If the housing market don't go #@$%! up he might come out ahead if the interest rates are low and the refi charges are low enough.

msparks · May 7, 2007

As long as you factor in Risky.

What if life happens? and you have to stay there? Or if rates climb higher and your payments eat up all that savings.

Personally--No thank you.
I would pay off the Heloc ASAP if it were me (though I wouldn't have gotten a HELOC in the first place)

JHZR2 · May 7, 2007

Cripes... 8%?!?!?!?

Seems that anything is smart to get out of that trashy rate.

Appreciation will occur or not occur regadless of existing mortgage rate. It seems that so long as enough appreciation has occurred to cover closing costs, commissions, and payoff of the mortgage at sale, with at least a break-even occurring at sale time, that then it would be a good bet to cut the payout to the bank's profit, via a lower rate ARM or an IO loan (which seem to also carry low interest rates).

I guess the other key is how much interest vs. principle is being paid, which is also of course based upon how much the house cost to purchase. If the house was originally abotu $500k, than with $225k left, a fair amount of principle is being paid out per dollar in interest. That said, if the original mortgage as $250k, and its at $225k now, then 95c on the dollar is being paid in interest - not worth it for a non-keeper...

JMH

Pablo · May 7, 2007

Don't focus on the HELOC, say it's 6%. Or just any rate, money amount = $25K. (Think new car amount - 3% or something). Probably crazy to use HELOC.

OF COURSE this type of thing involves risk. Life happens. If it weren't for bad luck, I wouldn't have any luck at all. Trying to make my money work, that's all. Debt sucks, and I agree with Dave Ramsey, too - however - short term money usage.

House purchased for $395K in 2005. We scored on this house - we were the first to look at it and made an offer that hour. Original mortgage was $230K in Sept 2005. Neighbor with near identical features, but worse floor plan, dead carpets, etc sold for $539K. So - I have made some good money -but don't want to take the less than 2 year tax hit, plus my body is not up to moving right now.

So I sit in my juices and plan....

BTW - The PNW is winning accolades for holding strong in housing. Seems like our ascension was a bit orderly.

Pablo · May 7, 2007

I need to find out what's with these super low teaser rates....no one is giving money away!

JHZR2 · May 7, 2007

Quote:

Original mortgage was $230K in Sept 2005.

BTW - The PNW is winning accolades for holding strong in housing. Seems like our ascension was a bit orderly.

If the original mortgage was $230, and youre at $225, then right now youre only really keeping the grass mowed for the bank - probably >95% of your payment is going towards interest and taxes.

Given that youve made a good deal of money, you do intend to sell, and youre paying so much intererst relative to the principal that youre gaining... If I had plans like yours, Id figure out the terms and scheme the system to pay the least interest I could...

Maybe the best bet would be to "hybrid" it... do one of the 30 yr loans (long time, but hear me out), which has the teaser for the first 5 years or whatever. Pay the interest only, but then as desired chip away at the principle more aggressively, by virtue of 'using' the system that was designed for low initial payments to your advantage by having more free cash to put towards it. Then, if "life", "bad luck" and "risk" come and slap you, you have a good deal of time, and a reversion to a standard mortgage to prevent you from being in a bind.

IMO, youre in a strong enough position to set up a scheme to minimize your interest payments and maximize free cash. Then again, I am just running numbers in my head, not a full analysis either.

BTW - congrats on house pricing staying steady. I lucked out and in my town, which has been a pretty hot area, we have been doing the same. Its nice to see amongst all the doom and gloom!

JMH

Pablo · May 7, 2007

Quote:

Maybe the best bet would be to "hybrid" it... do one of the 30 yr loans (long time, but hear me out), which has the teaser for the first 5 years or whatever. Pay the interest only, but then as desired chip away at the principle more aggressively, by virtue of 'using' the system that was designed for low initial payments to your advantage by having more free cash to put towards it. Then, if "life", "bad luck" and "risk" come and slap you, you have a good deal of time, and a reversion to a standard mortgage to prevent you from being in a bind.

This is sorta where I'm going, but rather than "tie" the money up further equity growth, I want to bank/invest it and earn on it. I certainly would not be doing this if I put 20% down, or the house had not appreciated.

Thanks!

Carbonics · May 13, 2007

I'd venture to say anyone trying to sell now is going to take a nice loss, that or sit and spin until the market catches fire.... a lot of folks just can't accept that fact and deny until they go bankrupt.

Pablo · May 13, 2007

Must be a California thing. People selling houses up here are still going "cah-ching!"

JHZR2 · May 13, 2007

Quote:

I'd venture to say anyone trying to sell now is going to take a nice loss, that or sit and spin until the market catches fire.... a lot of folks just can't accept that fact and deny until they go bankrupt.

Anybody that bought more than they could afford, or took out tricky financing that is now pinching them is tasting their own medicine. They deserve to take out a loan or go bankrupt.

Too much show with not enough substance.

Most people that have bought within their means are not feeling any sort of problems right now... they may realize a small loss if they need to sell right away, but except for a very limited number of cases, where life smacks you in the face, there was very little reason to buy if you were planning to sell within a year or three.

JMH

Shannow · May 13, 2007

Pablo,
completely unrelated to your situation, and applicable to Oz.

My boss took out a sizable, unsecured, and interest only loan (while he still had a mortgage on a place that was certainly appreciating, but he still had a fair bit of equity and could pay off his loan if all went bad), and invested it.

Down here, the loan on your primary residence is your problem, however if you take out a loan for investment purposes (negative gearing the property or the share market) the interest is a tax deduction.

So he basically took a loan against the house, without the house being tied to the loan. Claims all of the interest payable to the investment loan against his tax (at 40+% tax rate, that's a good reason).

It works for him.

Carbonics · May 20, 2007

Quote:

Must be a California thing. People selling houses up here are still going "cah-ching!"

considering California attracts far more folks I'd say probably not...

New people moving to Washington per year as of 12/06 -
103,899

California - 303,402

200,000 more...more demand...higher prices... prices dropping, there you have it, more demand and prices still dropping.

maybe the starbucks factor plays a role up there, like the beach does here...the closer you are to one the more $ you can ask.

Pablo · May 20, 2007

Quote:

considering California attracts far more folks I'd say probably not...

New people moving to Washington per year as of 12/06 -
103,899

California - 303,402

200,000 more...more demand...higher prices... prices dropping, there you have it, more demand and prices still dropping.

Total population of California = 36+ million
Total population of Washington = 6 million

Go back and think about it. Run those numbers. You could also factor land area into as well, but just raw people numbers should tell you someting.

We are getting crowded on the west side of the mountains. While our housing is not quite as rediculous as yours (thank goodness), the values are still increasing and the percentage increase has been higher.

Carbonics · May 20, 2007

Quote:

We are getting crowded on the west side of the mountains. While our housing is not quite as rediculous as yours (thank goodness), the values are still increasing and the percentage increase has been higher.

which means Washington is right around the corner since everyone else experienced just as you describe prior to reality.

Refinance/Moving ideas

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