Q. With housing prices low, and a commitment to close on a new house in three months, should we rent our current home and wait a year or so to sell at a higher price?

A. Probably not.

We know homes appreciated like crazy for more than a decade. The median sales price – that’s the price for which half the homes sold for more and half for less – rose more than 110% over the past 11 years and by more than 25% just since 2003.

But over the past year prices have leveled out. The National Association of Realtors say median sales price for an existing home was $227,500 in the second quarter (that’s the prime selling months of April, May and June.)

Monthly figures show median prices reached $230,000 in July before declining to $225,000 in August, putting the median price for the first two months of this quarter right around $227,500 as well.

That's only $100 less than the quarterly record reached last summer of $227,600.

NAR projects home prices will increase only 2.8% this year and 2.2% in 2007. So even if you wait a year to sell your home, you shouldn’t expect to sell it for a lot more than you can right now.

Finally, renting a house can be a lot more work and trouble than you think. Before taking the plunge, please read about the all pitfalls here.

Q. We have an interest-only mortgage at 5% interest with a balance of $900,000. We also have a home equity loan at 8.25% with a balance of $125,000. Our home was appraised at $1,125,000 in July of 2005. Our goal is to have just one loan with one mortgage company at a fixed rate without changing our monthly payment too much. Is this possible?

A. It will be very hard because you’ve been enjoying a below-market interest rate and an interest-only loan.

Assuming you’re paying only the interest charges for both loans, our calculation show your monthly payments must be about $4,610 -- $3,750 on the primary mortgage and $860 on the HELOC.

Looking at our mortgage tables we found a million-dollar, 30-year, fixed-rate loan in your area for a very reasonable 6.125%. Yes, a few lenders offered slightly lower rates, but they wanted as much as $7,000 in fees. This loan charged only $625 in fees and looked like the best deal to us.

Borrowing $1,025,000 at 6.125% over 30 years would cost $6,228 a month – $5,232 in interest and $996 to begin repaying the principal for your first payment.

That’s a hefty $1,618 more than you’re paying now.  But we doubt you’ll find a fixed-rate loan for much less than that they’ll all require you to begin paying back the principal.

An alternative is to refinance with an adjustable rate mortgage. We found an ARM with a three-year initial rate of 5.5% that would charge about $3,000 in fees. But the monthly payments would still be $5,819, or about $1,200 more than you’re spending now.

If you don’t have mortgage insurance now, a new loan will almost certainly require you to buy it until you build 20% equity in your home. Mortgage insurance, which protects the lender in case you default, typically costs $40 to $60 a month for every $100,000 you borrow. That would add another $400 to $600 to each payment.

Have a question about your finances? Ask us at editors@interest.com.

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