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(Updated January 2015)
As a mobile home owner, you pay interest and build equity just as a traditional mortgage borrower does. Even if your mobile home isn't financed with a mortgage, you can still use a refinance to move closer to your financial goals.
If you own a mobile home and aspire to a greater level of financial wellbeing, a mobile home refinancing loan may be the right vehicle for you. Particularly if you've had it for several years, you may find that you can reduce your interest rate and save money, and perhaps pay your loan off a bit faster as well.
Some mobile homes are financed with mortgages, but most are financed by personal property loans, or chattel loans. Relative to mortgages, personal property loans are usually more expensive and have shorter maturities. Mortgages are typically reserved for mobile homes that are permanently attached to the land and where the owner has title to the land as well, rather than leasing the lot. In those cases, both the home and land secure the loan.
Regardless of whether your existing loan is a mortgage or personal property loan, refinancing can be used as a wealth-building strategy. This is because personal property loans and mortgages are both governed by the same general principles:
- All else being equal, refinancing to a lower interest rate lowers your payments and improves your cash flow.
- Paying down your principal creates equity, which is the value of the home over and above the loan balance. If you have equity, you can borrow against it with a refinance home loan.
- Refinancing to a shorter term at a lower rate can allow you to pay off your loan faster with no or little increase in your monthly payments.
Personal property loan refinance vs. mortgage refinance
Personal property loans aren't as heavily regulated as mortgages, so lenders have more leeway to adjust rates, terms and fees. Since programs can vary greatly from lender to lender, comparison shopping is a vital step in the process.
Keep in mind that mobile homes do not hold their value as well as fixed homes do. This affects a lender's willingness to refinance the mobile home, as well as your ability to build equity.
It may be difficult to refinance an older home, just as it's difficult to build equity in an asset that's declining in value. Many lenders will not refinance any mobile home older than a certain age, though it varies from lender to lender - for some, it might be 20 years, for others, it might be 30, 40 or more. You'll want to shop around.
Lenders often have certain minimum amounts that they'll refinance, and these vary based on whether you're refinancing just the unit itself or the unit and the land it's attached to. So if your loan is mostly paid off, you may have difficulty finding a lender who'll refinance you.
Also, be aware that just because a lender offers loans to purchase a manufactured home, that doesn't mean they'll refinance those loans. Many will only handle purchase loans. But if you're turned down, that doesn't mean you can't refinance, it may just mean you haven't found the right lender yet. Often, it will be a smaller lender who'll take on these types of refinances, so don't fret if the big banks refuse you.
How much can you save?
One of the key things with any refinancing, either for home mortgage, auto loan or mobile home loan, is to make sure your savings from refinancing are enough to make it worthwhile. You'll have to pay closing costs when you refinance, and if you aren't saving enough in interest to balance those out over the next few years, refinancing won't have been worthwhile. You can use a mortgage or refinance calculator to figure out exactly what your savings would be and how long it would take to recover your closing costs.
Another thing to keep in mind is that, just as with a regular mortgage, your credit score will have a major effect not only on your ability to qualify for a refinance, but on the rate you'll have to pay as well. If you've got a credit score in the 700s, you'll pay a signficantly lower rate than someone with a score under 650. And if your credit profile has improved in the years since you've bought the home, your potential interest savings are greater as well.
If you've been thinking about refinancing, start exploring your options now. It doesn't hurt to check and there are lots of companies out there who specialize in purchase loans and refinancing for manufactured housing. You could be pleasantly surprised by the money you save.