ok, i'm ready to make my move--help?

suz1023March 29, 2010

I've been reading this forum with great interest for quite a while and have learned a lot. And knowledge is power, so I'm about to make some powerful changes and take charge of my finances.

Don't know how much detail you need, but I hope to get some advice and a push in the right direction if possible.

So, I am in year 21 of my 30 year FMHA mortgage with an interest rate of 9%. I could go back to 1 or 2 % if necessary, and since my husband became ill eight years ago I've held onto the FHMA just in case I needed to be subsidised again. But i haven't had too, and while he is still very ill, I think I may be ready to take the plunge and refi to a rate of 5% or less.

I owe 75 k (including recapture), the home is worth (as is) almost 400k, even in this market. However, before he became ill we had started a complete renovation and had to stop before we were finished. The house needs another 100k to be done, with extreme likelyhood of recouping that (new septic, kitchen and roof) in a few years when I sell.

The other factor is credit cards, when he became ill and had to retire we became credit card users--for out of town hotels near the hospital etc.

My goal is to pay off the outrageous crdit cards(25k), the mortgage, (75k), and next year borrow another 100 to finish off the hosue. I'd do it all at once if I could, but his health prohibits living in a construction zone for at least a year.

So, if I pay off my 9% mortgage, and my 17-27% credit cards, I'll have a significant monthly savings.

My credit is good, I will keep a lower interest card for my monthly cell phone and car fuel bill. Otherwise we won't need to use them again, we're not in the habit of buying stuff, and make do with family furniture,etc.

My income is decent, and even if my husband does not survive the next year I will still be able to make payments fairly easily.

One concern is if I borrow only half of what I need now, will that hinder me next year when I want to borrow the rest? And would i be smarter to go back to being subsidised and not pay off my mortgage? If I do that, than who knows how much my recapture will be down the line? I suppose I could be subsidised for the next nine years, and then start paying down the subsidy, but I really don't know if that is a better plan. I do know for sure that paying off those credit cards will free up a lot of monthly cash--maybe I should make double mortgage payments and stay with FMHA?

And yet another issue is every time i call FMHA I get a different answer, so i am pretty worried about it though being re-subsidised is a tempting idea. What to do?!

Anyway, I know I'll have to factor in closing costs, and am a little worried about doubling my debt next year to finish off the house. Several realtors have told me I must do it if I have any hope of making back anything I've already out into it,luckily before he became ill we did all of the work ourselves and financed nothing. The other piece is that of course I would love to finish what we started thirteen years ago, and if I end up living here forever I will not regret finishing it.

Also we have no other debt, thank goodness.

Your advice, input, opinions are all welcome, this is a huge and scary step for me!

Thanks very much.

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You need to work with a Lender. FMHA is a Farmer's Home Loan .. is that what you have? And I don't understand the part where you say you were "subsidized", or "recapture"...

If your home is still incomplete, most lenders will not want to close on a new/refinance mortgage until the work has been finished.

    Bookmark   March 29, 2010 at 1:46PM
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thank you for your response pam. i'll try to clarify for you.
first, i am working with a lender. the lender wants to sell me a loan, which is why i am seeking other non-vested opinions.
fmha is farmer's home and the loan is a subsidised loan if i need it to be..
so when i took out the loan in 1989 i got a 9% loan but only had to pay 2% of that each month, the rest was subsidised by them--which was the only way at the time i could get into homeownership. luckily i only needed the subsidy help for a few years before i was able to pay the full monthly note at 9%.

recapture is basically paying back what the program 'lent' you while you were being subsidised.

the house is fully functional, but what needs to happen is the kitchen, mudroom and septic need to be brought up to the remodeled standards of the rest of the house. basically we have the plan for the new kitchen addition fleshed out, but the work stopped when my husband became ill and he could no longer do the work. now we'll have to pay someone to do it, which will cost a lot more than doing it ourselves.

    Bookmark   March 29, 2010 at 5:22PM
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If you have the option to refinance under 5% from 9%, you need to do that ASAP. That will almost cut your mortgage payment in half. Use the extra money to pay down your credit cards. Once that is done, you should have a fair amount of "extra" money in your budget.

If your kitchen is "livable" I would suggest you don't borrow money for upgrades. Use the extra money you have been spending on mortgage and credit card payments and start saving. Build up an emergency fund so you don't fall back into credit card debt when life throws you the next curve ball. Once that is done, you can look at home equity lines to finish any outstanding construction - or better yet, continue to save money so that you can pay cash for your dream kitchen.

    Bookmark   March 30, 2010 at 8:23AM
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Thanks fallingwater, I understand now. I have seen other loan programs with recapture provisions, but not one with a subsidy like that. Nice program!

I would agree with Bill ... rates are still very low and it woould save you a lot of money to get a lower rate. Shop around a little and see what a couple lenders could offer you.

    Bookmark   March 30, 2010 at 12:14PM
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From here (Canada) it looks like interest rates are on their way back up. I like the idea of locking in low rates all else being equal.

From time to time I have used a HELOC to pay off my credit cards. The HELOC is 2.5% over prime if memory serves. If your credit is good you should at least shop around for lower rates on the credit card debt. Even the threat of taking your business elsewhere might get your credit card companies to drop their rates. I am quite well aware of the arguments against using secured debt, i.e. the HELOC, versus unsecured debt, i.e. the credit cards. My personal finances are good enough that I can't see ever defaulting on debt so the difference between secured and unsecured debt is irrelevant for me.

    Bookmark   March 30, 2010 at 4:25PM
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