Refinance Or Sell And Pay Capital Gains?
My husband and I had some bad luck in 2001, we owned a property that wouldn't sell and he lost his job. He found a new job and we were relocated to another state. His new employer co-signed on a mortgage and we bought a house at the same time our old one wouldn't sell. We also had a Second Mortgage on that property and we had to file a BK. (The discharge was in January 2003. Now, his new employer had us sign a note to pay back the 15K down payment on our current house by June 2004 with 5.5% interest. Now here's the problem....We don't have 15K to pay him back and we really DON'T like the house at all. Here's the good news we now have over 90K in equity in this house. We have gotten two quotes on doing a refinance but because of the BK the fee to do a refinace on the first mortgage and pull out money to pay back his employer is over 10K. I want to sell the property and pay his employer back out of the profit and use the rest to put down on a better house for our family. My husband doesn't want to pay Capital Gains Tax because we won't be in the house for two years until June of 2004. Which is exactly when we have to pay his employer back. So, do we sell now and pay Capital Gains or pay money to refi on a house we are going to sell in six months?
I assume you purchased your home in June 2002. If that is correct, you probably have prepays on your current mortgage to cause the fees to refi to be 10k+. I would check w/ current lender to find out because if you do, you still might have to pay the prepays whether to refi or sell. Either way refi or sell/purchase your fees might end up to be 10k+. Check w/ your current lender. 10k+ in just fees is alot even w/ the current BK.
My question is, if the note w/ the employer isn't due till June 2004, why pay it now? You have a really good rate, if you refi to pay it off, your interest rate will be higher and you pay 10k+ in fees. Seems like a waste of money to me.
As far as selling, long term capital gains tax at this moment is only 15%. (Prop held for more than 1yr) Check w/ tax consultant to verify. If you sell now, you would have to pay the ltcg, poss prepays and because you just filled Bk your cost and rate for new home will be alot. I would recommend you wait. If you sell on June 2004, you don't pay any ltcg, poss prepays and because your BK will be older than 1 year, you'll be able to get a better rate and cost compared to now.
I suggest you first find out if you have any prepays if you refi or sell, what the ltcg tax will be, compare scenarios of what rate and cost would be if you refi/purchase now compared to if you have 12mo seasoning on your BK and make your decision then. 10k in fees + ltcg tax + poss prepays + recent BK = alot of wasted moeny.
Quote:Now, his new employer had us sign a note to pay back the 15K down payment on our current house by June 2004 with 5.5% interest.Will your husband's employer give you an extension on the note? If he says no, ask if he will give the extension if you agree to increase the interest rate by one to two points.