Question:
I bought a house last January--5% down and two loans. the large loan is a 7/1 ARM and the small loan is adjustable. Obviously I'd like to combine the two loans into one loan and I know I've built some equity in the california home market. So I inquired about refinancing at a local credit union and the loan agent said I need to wait until I've owned the house for atleast one year because of the appraisal process.

He said that my house's sale price is still being used as a baseline for other houses being appraised in the area and I can't have it re-appraised yet. These aren't his exact words, but its the basic concept. does this sound right? loan rates keep going up and house prices are starting to go down in the bay area and I'd like to refinancebefore it is no longer beneficial.

Answer:
You want to refinance or you want to refinance AND TAKE CASH OUT? It sounds like the latter. If the former, then the agent is full of it, because the house has already been appraised at/near the sales price. If the latter, then it makes sense.

I bought a house last January--5% down and two loans. the large loan is a 7/1 ARM and the small loan is adjustable.

Are you paying for private mortgage insurance currently? Is that the concern? Or are you looking to get a longer fixed rate term on a bigger portion of the loan? Or are you thinking you'll be able to improve upon the rate at which your 7/1 ARM? If this is mostly motivated by the last concern, I'm not sure your timing is favorable -- 30yr fixed is gonna run you at least 6% now, fwiw. Here in Chicago, we're seeing 15month highs fueled on the long bond's strength since Greenspan dropped the bomb on the market and the market got the successor they wanted. With the Fed talking about little else but inflation recently, though I think you're wise to know that the trend is likely to continue upward on mortgage rates before it recedes.

Obviously I'd like to combine the two loans into one loan and I know I've built some equity in the california home market. So I inquired about refinancing at a local credit union and the loan agent said I need to wait until I've owned the house for atleast one year because of the appraisal process. He said that my house's sale price is still being used as a baseline for other houses being appraised in the area and I can't have it re-appraised yet. These aren't his exact words, but its the basic concept. does this sound right?

That sounds semi reasonable since appraisers to benchmark based on recent sales in the area, and the weight of your particular home's recent purchase price does factor heavily. But, it all comes down to what a given appraiser igned to your proposed new loan says, however. The other thing to know is that credit unions seldom have anything near the best rate you can get on a home mortgage, at least in my experience in TX and IL. I'm a big fan of credit unions for other products, but they just can't seem to compete in mortgage field vs ethical mortgage brokers. There are tons of ways to get screwed on a mortgage, so scrutinize those good faith estimates with someone whose done this a fair amount.

So you might be able to save even if you can't substantially improve your LTV. I'd recommend asking your financially savvy friends for a referral to a good mortgage person, and then talk to that broker about your situation. Try to avoid paying an application fee--the ethical folks don't require them if they're willing to take your application. However it would be reasonable in an iffy situation for them to want you to pay an app fee equal to the cost of running your credit and what an appraisal would cost if the odds don't look good. Then, see what sort of rate they can offer you after taking down your credit info and salary and ets. The loan app they whip up will be suject to appraisal. And that's where the rubber will meet the road for your circumstance. If the appraisal comes back with teh appreciation you're hoping for, maybe you can get into a happier LTV (Loan to Value) situation.

I want to refinancebecause my small loan (15% of the total cost of hte house) is adjustable and keeps rising. My large loan (80% of the cost of the house) is fixed for 6 more years. At what rate do you have your large loan? So, with the equity I've built up, I'd like to use that to help combine the two loans into one loan. 30 year might be an option, but possibly a 10/1 or even another 7/1 ARM as well. I don't plan on being in the house for more than another 5 years or so. thanks for the info.

I'm not certain, but your reasoning on this may need to be reevaluated. That your home has increased in value cannot help you in a rising interest rate market unless you're paying PMI and looking to get out of that. What rates are your two loans presently? Are you paying PMI? If you're not paying PMI currently, a refinance/consolidation at this point is not likely to save you money because the interest rate has increased a good deal over the past year. If you are paying PMI, that's where your increase in equity might be able to help you--you might be able to lower your LTV ratio and lower or eliminate your need for PMI if you refinance. Assuming you're not paying for PMI, let's say your house was purchased at $100,000. You have a total of 95,000 borrowed. 15k is at a variable rate, and 80k is locked in for another 6 years at whatever rate you got last year (which is better than current rates, I'm uming). Now, let's say your house is in a really hot market and appreciated 25% in the past year now worth $125k. That's nifty, but who cares? The trouble is that you still need to borrow about $95,000 if you want to consolidate your total outstanding debt. And the added problem is that rates today are worse than they were a year ago. Your 3 options would be:

1) stick with what you have and brace for the (likely increasing) rates on your small loan, while feeling happy that your big loan is locked in at a rate better than what you'd probably able to achieve if you refinancetoday.

2) refinancejust the small loan into a longer term home equity loan. At least your rate will be fixed for some period then vs a fully variable rate loan that you seem to have now. The bad news is that that stability comes at a price:
your rate will be higher than what you're paying presently though (but may be less than what you'd be paying a year from now. ). If rates jump a bunch in the next year, you'll feel like a genius a year from now, glad you paid a premium to get a longer fixed rate term.

3) consolidate both loans into a new 7/1 or 10/1 ARM. You'll probably find that the rate will be higher than your big loan is now, but perhaps less than what your little loan
is. But you'll have to do the math to see if that pays off at all.