Refinancing home after appraisal is lowered

January 10, 2011

Refinance and take advantage of current low interest rates, if the decision is right for you.

Q: How do I refinance my home to take advantage of the current low interest rates when it's now appraised at less than it cost to build?

A: The real estate squeeze is on and many consumers are finding that to refinance they have to put cash into the deal because of low appraisals. For example, suppose your home cost $1 million to build in 2000 and you put $200,000 down and financed $800,000 with an adjustable rate mortgage. Then you refinanced it in 2005 for $1.4 million, cashing out $300,000 with a new mortgage of $1.1 million. You now owe $1,050,000, but the home is appraising at only $1 million.

So, you owe $50,000 more than the home appraisal suggests it is worth. What should you do?

You may even be surprised to learn that someone may be willing in this enviornment to defend a $1.2 million appraisal in your case. Also, consider shopping for a mortgage using commercial sources such as LendingTree.com or quickenloans.com.

Second, think about your professional and personal assets as sources for the financing you are seeking. For example, you might look into tapping your medical practice's line of credit, or taking a $50,000 loan from your retirement plan(s) at prime-based rates.

Your goal should be to secure interest rates in the range of 4% for 15 years, or 4.5% for 30 years as protection in case inflation returns. Any combination of the sources above can do the trick.

Be sure to use your lower appraisal to try to get your county property tax bill reduced.

Send your money management questions to medec@advanstar.com
. Answers to our readers' questions were provided by Minoti Rajput, MBA, CFP, founder of Secure Financial Strategies in Southfield, Michigan; and Joe Gordon, CFP, CIMA, AIF, cofounder and managing partner of Gordon Asset Management in Durham, North Carolina.