Wednesday, 30 January, 2002

Refinancing Woes

I never thought it'd be so difficult to refinance my mortgage loan.  Debra and I have spent the last 5 years putting large chunks of discretionary income against the mortgage in order to pay it off.  We now owe less than 1/4 of the property's value and we want to refinance the loan for two reasons:  1) to lower the payment; and 2) get some cash out so that we can finish remodeling.  In any other state I've ever lived this wouldn't be a problem, but Texas?  I'm fit to spit.

The Texas homestead law which until recently (1998 or so) prevented Texans from obtaining home equity loans, still prevents us from doing a cash out refinance using a normal mortgage loan.  Although it's not required that you file a homestead, everybody recommends it when you buy a house because it protects your house from most liens and judgments.  What they didn't tell me in 1995 was that filing a homestead also locks up my equity.

There's a way around the problem, but it's less than ideal.  A bank here will write me a home equity loan that covers the mortgage plus whatever cash I want to take out, but the interest rate is less than ideal; ranging from 7.25% to slightly above 7.5%.  Mortgage loan rates are 6.5% for fixed rate loans, and as low as 5.25% for adjustable rate loans.  I could refinance the balance as a regular mortgage and then take out a home equity loan for the improvements.  But that would entail two sets of closing costs (!), and the idea of paying $3,000 in closing costs for a loan of less than $50,000 just rubs me the wrong way.

What a mess.