A Personal Look at Refinancing a Second Mortgage
You can’t always control when you’ll be shopping for a new home. Luckily, my wife and I purchased our current home over 15 years ago, meaning we’ve enjoyed a great deal of appreciation in its value. Its sentimental value has increased in those years, too. Both our sons grew up in this house and the oldest even chose our back yard for his wedding.
About 10 years ago, when he was still in high school, expenses just seemed to increase by the day. We didn’t want to cut back on the boys’ activities, and the whole family just seemed to need a vacation.
Rates were pretty good at the time, and I decided to take out a home equity line of credit (HELOC) with a low, variable rate to pay for a vacation and help us with rising expenses. It was the boost we needed to get through those busy times. It was also great to find out that our home’s value had increased to the point that, even with the new HELOC, our closed-loan-to-value on our home was still under 80%. A few years later, I got a promotion and paid off the HELOC while rates were still low.
Times have changed, of course. Our younger son got married three years ago, and soon after, came to me with an unexpected request. He and his new wife were starting a family, and he didn’t want to try to raise a child in the city apartment building where they were living. He also felt nervous about buying a house in a less stable market. He wanted to move back into our house with his wife and pay rent to us until he could feel more confidence in the real estate market. While my wife and I were excited about the prospect of having a grandchild living in the house with us, we knew the situation would be far from stress-free, and we would need to add on a nursery, at the very least.
After having such a good experience with my last HELOC, I chose to take out another for the necessary additions. Again, I was pleasantly surprised with my home’s appraisal. The increased value allowed me to comfortably borrow enough money to add not only a nursery, but a small second kitchen and bathroom as well. We convinced the contractors to work quickly, and my son and his wife moved into their “mini-apartment” in our house a few weeks before the delivery date.
Boy, had I forgotten what it was like to have a newborn in the house! What’s more, it seemed as if for every few inches that my grandson grew (and he was growing like a weed!), my variable interest rate on the HELOC went up. The increases were small at first, but about 18 months ago, I got my monthly mortgage bill and it was close to $200 more than I’d become accustomed to paying. I knew I needed to refinance that second mortgage before the variable rate could rise any further.
I had a few options. I could refinance the second mortgage on its own, or refinance my first and second mortgage together into a single loan with one payment. The second option would have made more sense if I
could have gotten a better rate than what I was paying on my first mortgage, but that didn’t turn out to be an option. So I decided to refinance the second mortgage from a variable rate HELOC into a fixed rate second. My rate would be higher than what the variable rate had originally been, but lower than the current variable rate of the HELOC. Most importantly, though, it would never go up again. My very first payment on my refinanced second mortgage was more than $100 lower than the shocker bill I’d received a few months before.
My wife loves having her grandson living with us, though I believe our son will be looking for his own home soon. Once he and his family have moved on, we may try to find someone to rent out the little attached apartment, or we may just keep it open for visiting family and guests.
Either way, I just can’t imagine selling this house. It’s a rare day that my wife doesn’t say, “We have so many memories invested in this house.” I like to joke about how we have even more “dollars” invested in the house, but she knows that, deep down, I agree with her.
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