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Equity Now In The News - 2013

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Real Estate


Refinancing a vacation home requires sharp focus on goals

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Originally published: September 13, 2013 3:15 PM
Updated: September 15, 2013 7:52 AM
By DANA DRATCH  Bankrate.com

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Photo credit: AP | Newly built luxury homes are seen at Lake Las Vegas in Henderson, Nev. Lake Las Vegas, a golf community 17 miles from the strip, was one of several Western vacation spots that faced financial uncertainty or worse. (June 19, 2008)

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What's the downside of having a vacation home? Having a vacation-home mortgage is one, for starters.

If you're considering refinancing a vacation home, make a list of what you want from the transaction before you start shopping. Keep those goals in focus.

"The whole value of refinancing is to lower your monthly costs," says Barry Zigas, housing director for the Consumer Federation of America.

 

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As for how long it should take you to recoup refi costs, "There's no obvious right answer," Zigas says. "It depends on your personal situation."

Lenders often want at least two months' worth of payments, taxes and insurance in the bank, says Matt Hackett, underwriting and operations manager for Equity Now, a direct mortgage lender in New York City. They'll want a list of assets, too.

You don't find out how much equity you truly have until the lender's appraisal comes back about halfway through the loan-underwriting process. So when you self-assess equity before loan-shopping, be ruthless.

If you study comparable properties, make sure they really are comparable, with similar age, size and composition. Consider recent sale prices only, not asking prices or old sales. And that foreclosure down the street that's just like your place? Count it.

If you have more than one mortgage on your vacation home, refinancing gets more complicated.

Unless both your mortgages were made simultaneously and used exclusively for buying that home, rolling two mortgages into one when you refinance is often classified as a cash-out refinance, Hackett says. With a cash-out transaction, lenders want to see more equity in the home, Hackett says.

Instead of consolidating two loans, you could pay off the second mortgage before refinancing. Or you could refinance only the first mortgage, if the second mortgage lender will allow it, in a process called subordination.

If you plan to refinance around the same time as a career change or retirement, you'll have more loan options if you refinance before that salary flow is disrupted, says Michael Moskowitz, president of Equity Now.

A logical place to start shopping is the institution that made the initial home loan.

Then you should shop around just "like anything else," says Stanley D. Smith, a professor at the University of Central Florida.

Talk to real-estate and lending pros where the vacation home is located, he says. They're going to have the best idea of the current local market and property values. Compare that to the options you find where you live year-round, Smith says.

When you ask about cost, you deserve a straight answer. Even so-called no-cost refis have fees built into the loan. Ask the potential lender to itemize the fees and explain them all.

 

Mortgage rates are little changed the week of Sept. 12 as investors anxiously await the Federal Reserve's meeting scheduled for next week.

The 30-year fixed-rate mortgage fell 1 basis point to 4.71 percent. A basis point is one-hundredth of 1 percentage point.

The 15-year fixed-rate mortgage rose 1 basis point to 3.75 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, rose 1 basis point to 4.89 percent.

The 5/1 adjustable-rate mortgage was 3.65 percent, the same as last week. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.

 
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