Q&A: Refinance or home-equity loan?
We have an adjustable mortgage which is going to go up in October 2008 and want to refinance it before it does. We also have around $25,000 worth of loan and credit card debt that we would like to consolidate in one home equity loan. Both me and my wife have good credit scores, not exceptional, but not bad. What do you recommend we do first? The re-fi or the home equity?
I'll bet other people are weighing their mortgage options right about now, too, so I posed the question to Ethan Ewing, president of California-based Bills.com. His suggestion:
The other caveat: "You've got to have some fiscal discipline," he said. That is, don't roll your debt into your home mortgage if it will just tempt you to run up more debt.
He suggests a 15-year fixed-rate mortgage when people refinance if they can manage it -- because you'll pay off more of the principal sooner -- but a 30-year fixed-rate is fine, too.
Mr. and Mrs. Joe have a year before their rate adjusts. But Ewing thinks they ought to refinance soon, never mind the predictions that the Federal Reserve wants to lower rates further.
"I'll tell you, rates are really low right now," he said. "They shouldn't wait. ... There's just no guarantees that in a year, rates are going to be that low."
Hope that's helpful, Joe.
Got a question -- or other advice for Joe? Comment away.
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Comments
Jamie,
Does your "ten months" to sell existing inventory take into account rising inventory? I think it is important to recognize that as foreclosures are expected to rise and other people will be looking to sell their homes to avoid foreclosure, the Spring is traditionally when properties are listed for sale..all of these factors could cause the number of llistings to rise even higher before demand takes over to reduce inventory. This, in turn, may drive prices down.
Posted by: Robert Strupp | January 22, 2008 4:32 PM
Hi, Rob -- did you mean to post this question to the How-to entry about competition? If so, the answer is that it looks at the number of homes on the market in December vs. the number of homes that sold in December. That's known as "months' supply."
It answers the question, "How long would it take to sell everything at the current pace of sales?" But it doesn't answer the question, "How long would it take to sell everything at the current pace of sales if even more homes hit the market?" That requires forecasting, and I try to stay out of that arena.
What makes months' supply useful is the comparison. How does this area compare with that area? How does this area in December compare with itself two years ago? Etc. etc.
Posted by: Jamie Smith Hopkins | January 22, 2008 4:47 PM