I have a question about cash-out refi's. I owe $230,000 on
my home but it recently appraised at $360,000. We live in a sought-after area
of Atlanta and want to stay in our neighborhood.
around for a couple of years, we have decided to add on to the house instead of
moving. We have had a LIBOR-based adjustable-rate mortgage to finance the house
while we were deciding what to do. That loan is currently at 3.125 percent but
the rate resets every six months.
Now that we have made the
decision to remodel, I am leaning toward using a cash-out refinancing with a 30-year
fixed-rate mortgage. We anticipate the remodeling to cost around $100,000 and
I don't want to have both a floating rate mortgage and a home equity line at the
same time. That's a lot of interest rate risk. Does that sound like a good plan,
and how would I go about doing this? Thanks for your help. -- Charles
The concern I have about you using a cash-out refinancing
is that a $330,000 mortgage on a $360,000 home may put you in a position where
you have to pay private mortgage insurance (PMI). You're also crossing over from
a conforming loan to a non-conforming "jumbo" loan.
loan limit for a single-family home is $322,700 in most states. The limit
is higher in Alaska, Hawaii, Puerto Rico, Guam and the Virgin Islands.
that you've decided to stay put, it makes sense to move to a fixed-rate mortgage
from your adjustable-rate loan. Fixed rates hitting a 40-year low last week also
helps in the decision to commit to a fixed-rate mortgage.
home equity line of credit (HELOC), home equity loan or a construction loan would
allow you to capture the increase in the appraised value before doing a refinancing.
That should get you past the PMI issue. A $100,000 HELOC would be more flexible
than the construction loan. You'll take on some interest rate risk waiting for
the completion of the remodel, but will also realize some interest savings by
staying in variable rate loans through the construction process.
a handle on how long it will take to remodel your home and make a decision whether
you're willing to accept the interest rate risk over that time period. Keep track
of what's going on in the mortgage market on Bankrate using its weekly
rate survey and its Rate