Refinancing Mortgages Under the Obama's Making Home Affordable Plan and Primary Residences

Q: You recently wrote about the Obama Making Home Affordable plan that is available for primary residences owners to refinance their loans.

Our primary residence is paid off and we purchased a vacation home in 2005. My husband’s financial situation has changed, and at the same time, I’m afraid our vacation home has lost value. The loan is secured by Fannie Mae.

Does the Obama Making Home Affordable refinancing program apply to mortgages on second homes or only primary residences?

A: I wish I had better news for you. Unfortunately, help through the Obama Making Home Affordable program is available only for primary residences at this time.

If you are looking to refinance a loan and lower the interest rate on your vacation home, your options may be quite limited, particularly if the value of that property has gone down substantially.

What you can do is obtain financing on your primary residence and use those funds to pay off the loan on your vacation home. But you need to make sure that you are able to reduce your monthly costs while keeping the costs of refinancing your primary home to a minimum.

If you find that refinancing won’t really lower your monthly expenses, or if the costs to refinance are too high, or your primary residence doesn’t have enough equity to pay off your other loan, you may be out of luck.

Also, keep in mind, that the more equity you have left in a home you are refinancing the easier it will be for you to take cash out. If you are able to refinance your primary residence and can take out a loan for 50 percent of the home’s value, and that’s enough to pay off your vacation home’s loan, you’ll have more options. But the higher your home loan-to-value ratio, the tougher the lender standards will be.

Another idea is to tap an existing home equity line of credit, if you currently have one or can open one up on your primary residence. You might be able to use that loan to pay off your second home mortgage. But, run the numbers first to make sure that you’ll save money but not be putting your primary home at risk.

Your other option is to simply sell your second home, and use the home equity loan to make up the difference between what the house is now worth and what the mortgage balance currently is on the property.