I am going to be working under a similar arrangement. It is my understanding that it will be a refinance because you are basically refinancing a lien that is on your property. In my case, it is a construction loan through a bank but in the builder's name since the rate is so much lower and the bank will take a lien against the property. I will be interested in how this works out for you. A few lenders that I have talked to seemed to be confused by this but my reading of the Fannie Mae rules shows it to be a refi. It may also depend on how long you've own your lot.

Only you can decide what the right scenario is. Your gut will usually steer you in the proper direction. I can only tell you how free my husband and I feel right now without any loans on our property. No one can take it away from us if times get really sour. Naturally, you still have taxes, insurance, and upkeep, but building a reasonable home takes the pressure off of that. We look at our land and feel thrilled that it is truly ours. As long as someone has a loan on their home or land, they do not own it, the bank does. Try missing a payment or two if disaster strikes and see what happens. Disaster can be a major unexpected illness or accident, natural disaster in an area, or economy based. Was it a hassle to sell a house while living in it? For sure! I hated that process. (Fortunately, we sold in under a year). We decided the short term nuisance of selling while in the house was still better than owing a bank for more money. The interim of not being in my new home yet is difficult at times. I'm in a small place in the meantime. I'll admit, I'm spoiled and want it now. However, in the home scheme of things, it's only a short term inconvenience, and then I'll be through with construction and in my home. And I do have a decent roof over my head in the meantime. Also totally ours. As far as construction loans go, yes, they are given out in draws, but we had been locked into an interest rate that was good for the life of the construction loan, and grandfathered into the mortgage itself. However, the way the banks are now, that may no longer be the case. Keep in mind that a lot of banks will not let you be the owner/contractor, but it doesn't sound like that is the way you want to go anyway. Now the issue about equity loans. They are hard to come by these days, even with a perfect credit score. I have a friend who is vice president of a bank. She said that they have had many people borrow against a home they are currently in, and no longer wanted. Of coarse, they never tell the bank they no longer want the home. They say they want to make improvements, or whatever. With the real estate market what it is, it can take time to sell. So, they are buying another home with the equity money and letting the bank foreclose on the one that was no longer wanted. This has made getting home equity loans harder to get than hens teeth, and hurts the honest people. You may also find it very difficult to get the equity loan processed, funds dispersed, and a new home totally constructed ready to move in, within a year. Even with a reputable builder, homes are seldom done in the exact time frame we want. The banks are approving loans, setting closing dates, and then either pulling the plug for some lame excuse three days before closing, or re-setting closing dates over and over, due to "needing more papers filed" that come out of nowhere. Good luck in whatever decision you make. It's never an easy one, and I wish you the best.

Hi SG, Thanks for the prompt & thoughtful reply, Dave. I am so confused, though! I really thought that no matter what, getting a house paid for ASAP was a financially savvy thing to do. Yes, and no. Gathering up enough money (seperately from your real estate holdings) in order to BE ABLE to completely pay of the mortgage *IS* a financially savvy thing to do. Trying to do it by "tiptoeing across the minefield" by putting your cash at the risks of the fluctuating markets, not to mention other risks of real estate equity, is not the best way to go about it. You didn't know this, I am sure. The prevalent "back-porch wisdom" is indeed to take the risky way, and that's the overwhelming voice you'll hear from anyone who doesn't make a study of it (including many so-called "financial experts" who really ought to know better... but clearly do not.) The market should cycle back, worst case scenario, in 5 more yrs., wouldn't you say? Yes, highly likely that most of the real estate markets will recover in 5 years or less, and the real estate markets have zero choice BUT TO APPRECIATE to match the longterm rate of inflation, which we are only now beginning to observe on an explosive path growing into the future. If you have the cash & wherewithall to simply "wait it out" you'll ultimately be OK. I should probably have added, my DH will be retiring in 15 yrs. Don't want to have a mortgage then! If you have a chance, could you say more? Thanks! Stinky The BEST plan (for responsible people) to eliminate your mortgage is NOT to attack it in nickles, dimes & dollars at a time, but rather to "sneak up on it" by building up a side-account you'll ultimately be able to use in one stroke of a check to pay off the full mortgage balance all at once. As you've discovered, having more mortgage keeps the dropping markets from taking your control of equity away from you, and paying more cash into the real estate asset exposes you to vulnerability. Moving your equity from your real estate will cost you the after-tax costs of mortgage interest... however, the value of the reserves safety should not be understated, PLUS there are longterm savings vehicles that can be usually used to offset most OR EVEN 100% of the interest costs of the mortgage. "Simplicity" ignores the reality of the issues... most people slice it all apart and try to attack the mortgage by itself incrementally... and seperately (or even worse, theoretically AFTER they've sliced away the mortgage) they concern themselves with seperate account growth and safety reserves. If you adjust now, you'll immediately get aligned with safety and avoid any further liquidity & reserve risks. They say the first thing to do when you find yourself deep in a hole is... put down the shovel ;~) Cheers, Dave Donhoff Leverage Planner

mariend: Our previous mortgage product was *excellent*, and very beneficial to us. It was a variable capped rate mortgage - our payments were calculated at the fixed cap rate, but the interest was charged at the variable rate, and any difference was applied directly to the principal. During the three year term, we actually cut nearly two years off the amortization with that difference in interest. We're down to just over 11 years left to pay off our mortgage (which, with the differing tax systems is considered a good goal by many Canadians). We had signed up to renew into a similar mortgage product, but these products are apparently being withdrawn by most major lenders - they are not moneymakers for the bank! Our current payments are about as high as we are comfortable with. However, even a closed mortgage offers penalty free payment of up to 15% of the original mortgage value, which is more money than we will be coming up with, LOL. justnigel- dh wants to talk to a mortgage broker as well. He is extremely disappointed in the options being presented to us. The terms we had signed for, using the variable capped rate product I mentioned above, had a cap rate of 7.04% and a payment rate of prime minus 0.25%. The options they have given us have significantly higher rates than that. Carrie