Q: I paid off my Georgia house in 2003. Then I took out a home equity line of credit (HELOC) on that house to start building a new house in Florida. My plan was to sell this house and move to Florida. But I haven’t been able to sell the Georgia house.
The loan on the house in Florida is a 5/1 adjustable rate mortgage (ARM) at 6.25 percent and it’s an interest-only loan. The house was completed in 2007. I called my bank to see how they can help either lower my interest rate or my principal. They told me they cannot do anything to help. What else can I do?
A: You have two homes. One has an equity line of credit (HELOC) and the other has a mortgage. Which home are you living in now as your principal residence? Have you moved to the home in Florida?
Your current lender may be unwilling to help you but you may have better luck with another lender. If you’re employed and have income to support the payment on the home, you should be able to refinance the loan on the home in Florida, if you have made that home your primary residence, and reduce the interest rate to current market rates.
Keep in mind that you will need a credit score of at least 720 to get the better interest rates. If you have a score that is higher, you may be able to get an even more favorable rate. You should consult a mortgage lender, mortgage broker, your credit union, if you are a member of one, and a local (to Florida) community bank to see who would be willing to refinance your loan.
If the Florida home is not your primary residence, you may have more trouble refinancing, but you should just redouble your efforts as it will be a vacation home, and Fannie Mae and Freddie Mac are still buying those loans from lenders.
One issue you must think about is whether the Florida real estate market has caused the value of your Florida home to decrease to a level that will make it almost impossible to refinance your loan.
If property values have dropped far below the amount of your loan, you may not be able to refinance at all. Currently, you can refinance if your loan is 105 percent of the value of your property. If your property is worth only half of the loan amount, you won’t be able to refinance at all.
What you need to do is sit down with a couple of good lenders both in Georgia and in Florida and determine how much each property is worth and what the debt-to-value ratio is for each home.