I have a current loan balance of $66,000 on my primary residence for another 8 years at 5%. Actual value of home around $300,000. I also have a heloc for $75,000 on a rental property in my name on an adjustable rate for now is less than 2%. ($125,00 value of property). I have extra $25,000 cash to invest and don't know which balance to pay down. Or should I consolidate both and refinance at a fixed rate? Also,thinking about putting secondary property in 18 year old son name and cosigning for his primary residence. How would I go about switching things around to come out with the best rate.
thank you for your questions about your mortgages and your refinancing options. i will try to address all of your issues concerning refinancing, estate planning and co-signing a loan for your child.
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looking at your first mortgage, it has a balance of $66,000, an interest rate of 5%, and 8 years left to pay it off. the approximate value is $300,000. seeing that you are 8 years away from paying off the loan, you are now paying a lot of principal each month and not so much interest. this means, that the interest rate is less important than when you were at the beginning of your loan, when you were paying mostly interest in each payment. also, your interest rate of 5% is an excellent rate. check your monthly statement and see how much interest you are paying each month, so when you are weighing your options, you can make a more informed decision.
regarding your heloc, you did not say what the maximum balance is, so it is not possible to know if you can increase the balance on the heloc and use those funds to further pay down the higher interest primary property loan. again, if you are not paying much interest on the 5% interest loan, that may not help you much. you also did not present the terms in your heloc that describe how high and how often your interest rate can adjust. it may be the case that your current rate of 2% is such a low rate that there is not a good reason to pay it off more rapidly right now. to learn more about heloc loans, see the bills.com article all about home equity line of credit loans.
these issues aside, you expressed a possible desire to combine both loans into one fixed rate loan. i do not think this is a good option. most lenders will not offer one loan on separate properties. there are ‘hard money lenders’ who would possibly approve you for a loan, but they charge very high fees and interest rates, so it would not help you.
you have $25,000 in liquid funds that you are considering using to pay down your debt. given the interest rate you are paying, you have to decide whether it is better to pay down this low interest debt or to use your $25,000 for some other purpose. depending on how much you have set aside for other investments or retirement, you want to consider all the options that will best utilize this large a lump sum.
it is not clear from your question, if your son will be purchasing a new home that you may co-sign for or if you are thinking about co-signing on a refinance. maybe using some or all of the $25,000 for a down payment on the loan with or for your son would make it so that the loan would not require private mortgage insurance (pmi). pmi is usually required if the loan-to-value is greater than 80%. how large a loan is your son seeking on this property?
co-signing on a loan for your son is only a good idea if you are aware of the risks of co-signing for a loan for instance, are you able to make the payment on the loan, if your son is unable to do so at any time. you will be fully responsible to make the payments if he cannot and subject to collection efforts, fees, and interest if the loan goes into default. given your credit history and income, compared to a younger person such as your, your presence on the loan is the only way to get the best rates.
you also mention that you are considering switching the title to your rental property from your name to his. there may be serious tax implications for this action. it will likely count as a gift that you are giving, raising the issue of gift taxes and also affecting the amount you are able to pass on to your heirs from your estate tax-free. the exact tax implications will depend on the terms of the gift and how much the house is worth. the current irs annual exclusion from the value of gifts is $13,000 from an individual to an individual. if you, the donor, exceed the exclusion then you must file a gift tax return and pay the tax. however, there are ways to, in effect, amortize a large gift over several years. the irs site answers some common questions about gift taxes that are worth reviewing.
given all the issues you are considering, a smart step is to speak to an estate planning attorney and/or a cpa. this way, you can understand all the potential pros and cons of the various options that are available to you, such as putting assets into a trust, to be able to pass assets to your son with the smallest possible tax implications. not only can these professionals give you useful advice about the properties you mentioned in your question, they will provide you with a full analysis of your entire portfolio and be able to discuss what your mid and long term goals are, helping you establish a solid plan of action that minimizes your risks and maximizes your gains.
i hope this information helps you find. learn & save.