Refinancing Adjustable Rate Mortgage

Q: I bought a home in Indiana last July for my son and his family to live in while attending Purdue University. He is getting his PhD. I live in Georgia.
 

We chose to finance with a 5/1 adjustable rate mortgage (ARM) because he will only be there for 6 years. My interest rate on the loan is 8.75 percent, even though my credit score at the time was 760. It is now 752.

Should I try to refinance the loan? My son makes all of the payments on the house and I haven't had to do anything. I know I can try to lower the homeowners’ insurance premium a bit to save money, but do you advise refinancing since I do not occupy the house as my permanent residence?

A: What I don’t understand is why the interest rate on your loan is so high. Interest rates last summer weren’t that high and your credit score at the time was rather good.

You should refinance your property as a second home for personal use. Unless your debt to income ratio is completely out of whack, you should be able to lower the interest rate significantly.

If your son and his wife have income, and your debt-to-income ratios are out of whack, you might want to add him to the mortgage and title so that you will be able to get a better interest rate.

If you do this, please have an attorney create a partnership deal that spells out who owns what, who is responsible for what and who gets what when the property is sold. This will save a lot of heartache down the line.

As a final thought, if you have certain issues that are affecting the interest rate you are getting, you might need to resolve those issues before trying to refinance. If you have good credit and your debts are not high and your income is good, you might want to consider various lenders to see who can get you the best rate for your property.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com