Should I refinance now? (loan, fixed rate, interest, heloc)

[trmaoy]

I'm in Michigan and our house values keep dropping. Right now I probably have a little equity. I have an adjustable interest rate that will change effective Jan. 1st. We can afford the payment but we want it to be lower. Our rate is the 12 month libor plus 2.25, so currently that would put us at about 7.15, but the most it can adjust to in january is 6.875. It will adjust once a year every january so the following year it could be higher or lower. We also have a HELOC which is at the prime rate.

Our neighbors currently have their house listed for 20,000 less than what we owe. They are getting a company buyout, and the relo company will probably sell it for 10 -20k lower than the current listing price. It is possible that we may move in the next few months too.

Should I refinance now even if we won't recoup the costs if we end up selling? If my neighbor's house sells, my house value will go down even more and I will owe more on it than it is worth. Or, do you think the adjustable rate will keep dropping and I should just take my chances with it.

This is really a mess. I would appreciate hearing from any financial and mortgage professionals. Thanks.

[renriq02]

i would refinance into a fixed mortgage.......30yr fixed...rates are around 6.5%

rates MAY go down in the next year...but that's up to you to refinance now

Originally Posted by trmaoy

I'm in Michigan and our house values keep dropping. Right now I probably have a little equity. I have an adjustable interest rate that will change effective Jan. 1st. We can afford the payment but we want it to be lower. Our rate is the 12 month libor plus 2.25, so currently that would put us at about 7.15, but the most it can adjust to in january is 6.875. It will adjust once a year every january so the following year it could be higher or lower. We also have a HELOC which is at the prime rate.

Our neighbors currently have their house listed for 20,000 less than what we owe. They are getting a company buyout, and the relo company will probably sell it for 10 -20k lower than the current listing price. It is possible that we may move in the next few months too.

Should I refinance now even if we won't recoup the costs if we end up selling? If my neighbor's house sells, my house value will go down even more and I will owe more on it than it is worth. Or, do you think the adjustable rate will keep dropping and I should just take my chances with it.

This is really a mess. I would appreciate hearing from any financial and mortgage professionals. Thanks.

[trmaoy]

Originally Posted by banker0679

i would refinance into a fixed mortgage.......30yr fixed...rates are around 6.5%

rates MAY go down in the next year...but that's up to you to refinance now

So are you saying if you were me you would refinance right now? Also, what do you think is the likelihood of rates going down. Does the libor index go down when the prime rate goes down? Thanks.

[renriq02]

I think the rates are going down.....I think next year you should be able to refinance to a 5.875% 30yr fixed.......
it was this rate about 1month ago.

when prime rate is lowered....the rates generally go up.

[trmaoy]

Originally Posted by banker0679

I think the rates are going down.....I think next year you should be able to refinance to a 5.875% 30yr fixed.......
it was this rate about 1month ago.

when prime rate is lowered....the rates generally go up.

Of course, the risk of waiting is that my house value may go down even more. And when my neighbors' house sells, I am screwed. So, I will either have to live with the adjustable rate, or do something now. You said you think the fixed rate is going to go down, do you think adjustable rates will be going down too? That is what I was asking about. If the prime rate goes down, do adjustable mortagage rates go down too.

[DanielChang]

Originally Posted by banker0679

I think the rates are going down.....I think next year you should be able to refinance to a 5.875% 30yr fixed.......
it was this rate about 1month ago.

when prime rate is lowered....the rates generally go up.

Can you explain how when prime rate is lowered, mortgage interest rates go up?

What is the prime rate? Is it related to the LIBOR rate? I have often heard that a rate is prime + .9 or something like that. Does this mean that if the prime rate goes down the interest on that loan will go down too?

[renriq02]

The FED lowers the fed funds rate to stimulate the stock market.
30yr fixed mortgages are set by 10yr bonds.....
If the stock market is doing well then nobody will invest into bonds....so the mortgage rates go up. If the stock market does bad...then everyone will invest in bonds....so then the mortgage rates go down.

LIBOR is an indexed rate based off London Bank.
No relation to Prime Rate.

Prime Rate is affected by FED decisions and if the banks margin goes up or down. They normally keep it at 300bps over the fed funds rate.

Prime rates only affect credit cards, auto loans, student loans, HELOCs, etc.

If you have a fixed mortgage then your rates will be fixed.
If you have a Heloc or variable interest rate..then it will go up/down with Prime rate. Auto loans are fixed. Student loans.....most arent fixed. Credit Cards are tied to Prime rate plus whatever the bank charges.

I believe the market is overinflated...and will soon correct itself.

Originally Posted by jinxor

Can you explain how when prime rate is lowered, mortgage interest rates go up?

What is the prime rate? Is it related to the LIBOR rate? I have often heard that a rate is prime + .9 or something like that. Does this mean that if the prime rate goes down the interest on that loan will go down too?

[mbmouse]

If you are planing to move in the next few months and sell the house, you would actually loose some money as for the cost of refinancing. There are always fees, whether it is up front or financed in, there are fees. If you know your rate will not go higher than 6.875% for the next 14 months and you know you will move within that time frame, I would suggest not bothering to refinance, I can't see the benefit for you.

[trmaoy]

Originally Posted by mbmouse

If you are planing to move in the next few months and sell the house, you would actually loose some money as for the cost of refinancing. There are always fees, whether it is up front or financed in, there are fees. If you know your rate will not go higher than 6.875% for the next 14 months and you know you will move within that time frame, I would suggest not bothering to refinance, I can't see the benefit for you.

We are not certain at this point if we are moving, and will not know for sure for another 60 days. If we don't move, I definitely want to refinance, but if my neighbor's house sells, my value will drop further and I probably won't be able to refinance unless I come out of pocket.

Even if we move, we may have to rent the house out. It is taking some people one to two years to even sell their home in this market.

So, in light of the uncertainty, I'm just trying figure out what the best thing is to do. I think my neighbor's house will sell within the next 60 days because the relo company is going to give it away.

[martinez4]

One thing to consider...if the neighbors house will be unloaded then it will effect the apprasied value of your home.....it is a possibility, based on your equity, that you may not able to refinance. There is a level of equity that will need to be maintained and it will vary from broker to broker and the kind of loan package you are looking for. Basically...you won't be able to get a loan if you owe more than the home is worth....but I am sure you realize this.

Good Luck