Selling co-sign home

[Lynn Wong]

Should we sell the house for equity needed.

We are in CA, I am co-signing my nephew's home, currently paying $1500 mortgage monthly with 2.75% interest, it has 342K left on the loan. Equity is around 600K, We need 250K cash to help our sister. However, we can't afford to cash out refinance at this time. Also, if we do HELOC for $250K, monthly interest will be a lot. We want to downside the house to smaller home 3/2 instead of 6/4 right now. Is it better to sell, give my sis 250K and use 300-350K to get smaller home around 575K and restart mortgage 200-275K with current high interest with monthly mortgage probably the same as we are at now? Not sure what to do but we really need to help my sis. TIA!

[Connor Ryan]

Lynn, 

This is a tricky situation but I believe that giving up a 2.75% interest rate is challenging to give up as we may not see rates that low for a long time. It really depends on the purpose of the $250k to help your sister. 

One option is that you could do a HELOC on the home now to get her the immediate $250k. HELOC rate's can hover between 7-10 % pending underwriting so you'd be locked in temporarily with a payment. However, rates could potentially drop in the next 12 months. If rates were to drop, you can now feel confident in selling your home, paying off the HELOC and getting a new downsized home at a lower rate than the current market. Also, this would give more time thus putting you in Long Term Capital Gains Exemption if you've lived in the home 2 of the last 5 years. You might also find that you have the ability to refinance in 6-12 months as that gives you more time to save cash and also watch the market. The only disadvantage is that you would pay the HELOC payment to buy time to see what happens.

I'm happy to discuss all options if you have questions about HELOC's.

-Connor