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Mortgage Timing

Mortgage Library: Ask a Mortgage Related Question: Answers: Mortgage Timing

Question:

I own a house in Santa Barbara ( $ 1.7mil ) free and clear. I purchased a piece of property 12 miles south of Santa Barbara and will build a new house in about 2 years. I want to keep my existing house as I may want to move back into it a few years down the line. In order to build the new house I will take out a mortgage on my existing house ( which I will lease out upon completion of the new house ) in the amount of about 650k. Interest rates are pretty attractive now and it might make sense to take out a mortgage now. However if I don't need the funds for two years I will be paying interest on the mortgage. Should I just wait and take what will invariable be a higher rate two years from now or is there some way to take advantage of the current low rates? My credit is 790 and I have no debt.

K. W.
Santa Barbara
California

Answer:

Hello K.,

Thank you for your question!

There are many options you have with your unique situation. The best advice in the end might be to wait until you are ready to use the money. If you take out a low fixed rate mortgage today it might end up costing you in the end. If you calculate how much money you will be spending on mortgage payments over the next 2 years, it may not end up saving you money in the long run even if rates are higher in 2 years.

The best advice would be to take out a Home Equity Line of Credit. Many people have heard of Home Equity Loans and Home Equity Lines of Credit. These loans are usually associated with 2nd mortgages, however, they are also available as a first mortgage.

In your case, you are the exact candidate for this type of program. You can take out a $650,000 Line of Credit and maintain a zero balance until you are ready to use it. The downfall of this program is that it is adjustable and it follows prime but if rates are higher in two years you could close your Line of Credit and look for other options. Since you would be obtaining the Line of Credit as a first mortgage, you would most likely qualify at a rate below prime.

Regards,
S. M.


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