 Refinancing
when you own two homes
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 Dear
Dr. Don,
My wife and I have two homes. My mother lives
in one house and pays just the mortgage. We owe $35,000 on this
home, but the resale value is around $90,000. We owe $68,000 on
our other home, which is worth $160,000. The interest rate on the
first home is 7.5 percent and on the other home is 5.8 percent.
We also have plots of land that are valued at over $30,000. My question
is, would I be wise to take out a home equity loan to pay off the
$35,000 home and possibly buy a trailer home to rent on a plot of
land that we own, which only permits these trailers? -- Terry
Trailer
 Dear
Terry,
Look at this as two separate financial decisions,
and decide if each one makes sense on its own before bundling them
together in one transaction. Taking out a home equity loan to pay
off the $35,000 first mortgage isn't going to realize much savings
because currently
the national average for a home equity loan is 7.17 percent,
and the national average for a home equity line of credit, or HELOC,
is 6.58 percent. Rates on the HELOC are likely to continue rising
higher as the Fed continues to raise its targeted Federal funds
rate over the next year.
My point is that there's not a lot of interest-rate
savings when you refinance a 7.5 percent loan with a 7.17 percent
loan, especially after considering closing costs. Use Bankrate's
Refinancing Calculator to estimate how long it would take to
recoup your closing costs.
A cash-out refinancing of the other home would allow
you to pay off the $35,000 first mortgage, refinance the existing
mortgage, and tap the equity in the home to buy a trailer for the
plot of land. First mortgage rates are heading higher, too, but
you should be able to finance at a rate close to the current mortgage
rate of 5.8 percent. As I write this, the national average for a
30-year
fixed-rate mortgage is 5.91 percent.
I'm not sure what you plan to do with the trailer
home. Are you planning on using it as rental property, vacation
property or some combination of the two? A trailer isn't likely
to hold its value well over time, so you need to have specific plans
for its current use. The U.S. Department of Housing has a fairly
thorough discussion about manufactured housing on its Web
site.
Financing the trailer by tapping the equity in your
home is likely to be the least-expensive solution, but the Bankrate
feature, "Financing
a manufactured home," has more on financing this type of
housing.
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