refinance advice

[Moxie]

Ok, so I have two homes--a primary home and rental home. Now I don't owe terribly much on either home--about 70K on each. Both homes are mortgaged at 5.5%. I didn't refinance till now cuz I have two kids in expensive private colleagues and it wasn't going to benefit me any...but after January I can refinance!

It doesn't make sense to me to pay closing costs as well. I just hate that. And both mortgages aren't that expensive so I could do nothing, I suppose.

Still--I've read some of the refinance discussions on this board, and I suppose i've been stupid, that it's time to take advantage of great rates. I have excellent credit. I live like a monk because I prefer not to spend $. I have 10 yr old car. I'm happy with that. If someone hits/scratches it i don't care!

So here are my questions/assumptions.

1. I suppose it could take one Heloc and pay both loans, right? That way I wouldn't have any closing costs. If I did this, would I get the same tax right off? I know I'd need to do it on my primary home and then pay off both mortgages but I'm not sure of tax consequences because I rent the second home.

a) Would you recommend a particular HELOC (I'm in FL). I see SCHWAB at 4.%

2. I suppose I could refinance my primary home. I wouldn't want to extend the loan period. I have about 7 more years to go on both mortgages. I'm not sure if there's a 7 yr loan out there or I'f I'd need to take 15 or 10 yr one. Anyway, would it be ok to just pay off the 2nd home and just refinance for the primary home or would that be bad tax wise?

a) I've read on this board you can do a noncost loan--where you pay a higher interest rate but they don't roll the closing costs into your loan? Is that true? If so, would you recommend a particular company?

thank you all

[DaveS]

I would probably refi the house and pay off the rental. That is just because you can get a better home loan than a commercial mortgage. Last time I looked you can get 10 year mortgages at www.farmbureaubank.com You don't have to be a member of the Farm Bureau and the costs are low and they often waive an appraisal if there is a big equity cushion. . As long as the loan you get does not have a prepayment penalty, you can make any loan a 7 year by making larger payments each month. I don't want to comment on taxes because I don't know your marginal rate, or how much you can depreciate the rental to reduce taxes. Dave

[Majormajor78]

2. I suppose I could refinance my primary home. I wouldn't want to extend the loan period. I have about 7 more years to go on both mortgages. I'm not sure if there's a 7 yr loan out there or I'f I'd need to take 15 or 10 yr one. Anyway, would it be ok to just pay off the 2nd home and just refinance for the primary home or would that be bad tax wise?

a) I've read on this board you can do a noncost loan--where you pay a higher interest rate but they don't roll the closing costs into your loan? Is that true? If so, would you recommend a particular company?

thank you all

Technically they can write up a loan with any length but many lenders are not willing to since a unique term length makes it difficult for them to sell. A credit union that keeps all the loans they write may be willing to but I'd just look at the 10 year mortgage and pay extra if you want it done by 7 years.

I hate to say it but a no cost loan may or may not be practical for you considering the low balances remaining on your loans. No cost loans are usually arranged by using negative points to increase the loan rate but recieve a small percentage of the loan back as a rebate to cover the costs. Since your balances are so small you might need to take more negative points than is mathmaticaly beneficial to you to make the loan no cost. The mortgage professor (http://mtgprofessor.com/home.aspx) has some great calculators that can help you decide what the best deal would be mathmatically. Also, to give you a quick peek at how many negative points you would need I'd take a look at Amerisave.com . I've never used them but hear good things. One thing I like about this site is that when you ask for a quote they will provide you with a large spectrum of options ranging from a large number of points, down through no points and then beyond to negative point options. It really lets you see what the differnt options will provide in terms of upfront costs and monthly payments.

I'm not really up to speed on HELOC's and the tax implications so I can't comment on that option you mentioned. On the other hand, depending on how much equity you have in the primary residence it might be practical to do a cash out refi and use the cash out to pay off the rental property (cash out refi's often have a 1/8-1/4 percentage points higher rate). Taxes are pretty straight forward in this case since going forward the loan is a standard primary residence home loan. Plus, with the higher balance it would be easier to get a no cost loan since the loan amount would be bigger giving you more bang per rebate point and greatly reducing your closing costs since you are only paying the costs on one loan instead of two.

Hope this helps. Explore the Mortgage Professor website, it's a very good resource.

[Default User BR]

I had about 7 years to go on a mortgage with a relatively low balance. I elected for the PenFed 5-year home-equity loan at 1.99% fixed, no costs unless you have to get an appraisal. The term is a bit shorter, so a higher monthly payment.


Brian

[Moxie]

My thanks to each of you. I've taken notes on your posts and am researching. I had no idea it was possible to get a HELOC for 1.99% I was happy with Schwab's 3.99%

If I can do the HELOC from PenFed and take out $ to pay for both homes, sounds like that would prevent me from continuing to depreciate the 2nd rental home. I suppose I need to figure out how much that depreciation is helping me.

Perhaps it would be wisest to me not to try and double dip. IOW, maybe I should just concentrate on paying off my home and leave rental alone at 5.5%--after all, that's all tax deductible anyway and I keep the ability to depreciate.

[porcupine]

My thanks to each of you. I've taken notes on your posts and am researching. I had no idea it was possible to get a HELOC for 1.99% I was happy with Schwab's 3.99%

If I can do the HELOC from PenFed and take out $ to pay for both homes, sounds like that would prevent me from continuing to depreciate the 2nd rental home. I suppose I need to figure out how much that depreciation is helping me.

Perhaps it would be wisest to me not to try and double dip. IOW, maybe I should just concentrate on paying off my home and leave rental alone at 5.5%--after all, that's all tax deductible anyway and I keep the ability to depreciate.

First and foremost, if you have the available funds to do so, you should pay off the rental asap as well, not keep it just for the tax deductible nature of the interest.

Secondly, the Penfed loan you are considering is a Home Equity Loan (HEL), not a Home Equity Line of Credit (HELOC). From my understanding, if you pay down a HELOC to $0, you can go back and reborrow up to the limit you are given, whereas if you pay down a HEL to $0, that is it - if you want to go back to the well, you need to apply all over again.

Thirdly, you might not get a HEL at that rate for your rental property. I believe it is for primary residence only and is capped at 70% LTV in FL (which, from what I am reading from your posts, you are well under).

Finally, I believe you can borrow all the way up to the 70% LTV on a cash out HEL, in which case you might be able to pay down part of your rental as well. But beware that the HEL will need to repaid in full in 5 years.

- Porcupine

[Watty]

I had about 7 years to go on a mortgage with a relatively low balance. I elected for the PenFed 5-year home-equity loan at 1.99% fixed, no costs unless you have to get an appraisal. The term is a bit shorter, so a higher monthly payment.


Brian

+1 on that.

One way to figure out all the tax implications is to do a dummy tax return using last years tax software if you did your own taxes. The tax laws are always changing so that will not be exact but it should give you general idea of what problems you might run into.

[Default User BR]

My thanks to each of you. I've taken notes on your posts and am researching. I had no idea it was possible to get a HELOC for 1.99%

Note that this is the rate for up to 5 years. Over that has a significantly higher one. So if the term is acceptable, it's a good option.

https://www.penfed.org/Home-Equity-Loans-Overview/


Brian

[Moxie]

Ah, jeez, I still haven't followed through w/ an application--anywhere. The PENDFED 1.99% seems awesome but I got scared away by all of the negative posts on various boards about PENFED. Have any of you successfully done the HEL with them?

I need to get moving on this...

[porcupine]

Ah, jeez, I still haven't followed through w/ an application--anywhere. The PENDFED 1.99% seems awesome but I got scared away by all of the negative posts on various boards about PENFED. Have any of you successfully done the HEL with them?

I need to get moving on this...

If you had started the Penfed HEL back in Nov, you would be done by now for sure!

- Porcupine

[Default User BR]

Ah, jeez, I still haven't followed through w/ an application--anywhere. The PENDFED 1.99% seems awesome but I got scared away by all of the negative posts on various boards about PENFED. Have any of you successfully done the HEL with them?

See mine: Adventures in loan payoff


Brian

[Submariner1980]

If I can do the HELOC from PenFed and take out $ to pay for both homes, sounds like that would prevent me from continuing to depreciate the 2nd rental home. I suppose I need to figure out how much that depreciation is helping me.

Perhaps it would be wisest to me not to try and double dip. IOW, maybe I should just concentrate on paying off my home and leave rental alone at 5.5%--after all, that's all tax deductible anyway and I keep the ability to depreciate.

I think you may be confused. You can continue to depreciate the rental home until - (1) it is fully depreciated after 27.5 years, or (2) you take it out of service as a rental, either by selling it or some other method (eg, moving back into the house and using as primary residence). Paying off the mortgage doesn't have any impact on whether you can depreciate or not.

Mortgage interest is deductible, however, so you will no longer be able to deduct that as an operating expense if you pay off the loan.

[travellight]

I did the penfed on my second home; it is a fantastic loan. It can take 3 months but is otherwise fairly painless. To me, it is a no brainer. Cash out refi with penfed on your primary home and pay off the second with the cash out.