Hi,
I have $200K balance on my home equity line of credit of my primary residence. I own the house outright and the current market value for the house is about $400K. Is it a right approach to refinace the HELOC into a 30-year mortgage to take advantage of the low fixed interest rate. I'm also wondering if I can still keep the HELOC after I refinance. Will the lender require me to close the heloc account first so that the loan-to-value ratio is under 80%?
Thanks, Ian
Yes, it is good to refi a variable H/E loan into a fixed H/E loan or conventional 2nd mortgage. You could also try to refi both the first and 2nd into one new first. The lender will likely have you close the old H/E as part of the process of getting a new H/E loan. They may do this by writing a check for the loan balance directly to the old H/E servicing company. You may find it hard to get any new loans if you loan to value is over 80%, especially if the lender asks for a new appraisal, and that value comes in rather conservatively.
A variable rate H/E loan isn't the worst thing you could have right now. My H/E loan adjusted down to $3.125%, and will probably stay under the rate of my fixed first mortgage for quite some time into the future.
-john-
You don't own the house outright if you have a Home equity Line of Credit. Thumper
Am I reading this correctly? You owe $200K on the HELOC, but have no first mortgage?
It's tempting to have such a low rate (my HELOC is now 2.5%, vs first at
5.24%) but the HELOC has no place to go but up. Mine can go above the first in under a year if the 2001 run up is repeated. I've kept the HELOC balance at a level that I am confident I can pay off in full in less than a year. Yes, I'd recommend getting a new fixed first. No, you cannot keep the HELOC as the fixed mortgage will need a first lien. Nothing to do with 80%, it has to do with position. The first mortgage guy may give you a HELOC at the same time. Mine did, and each time I refinanced the first, they went through the motion of canceling and re-issuing the HELOC, even though both loans were theirs.Joe
Hey, it happens. Consider the following scenario:
You buy a house and take out a mortgage.
A few years later, interest rates have decreased slightly, property values have gone up, and you want to enlarge the house. So you take out an HELOC at a rate slightly less than the mortgage and add onto the house. Now you get a cash windfall and decide to use it to pay off as much debt as you can. Of course you pay the debt with the higher interest rate first.
Presto: HELOC with no mortgage.
Maybe it's just me but I think $200,000 in a home equity loan is a mortgage.
It is you. The terms are different. A HELOC that the OP has is a variable loan, which is tied to an index (usually Prime Rate) and can adjust monthly. It has a draw period, usually 10 years, then must be paid over the next 20, still variable.
If you mean the amount owed feels like a mortgage, well, of course. But the consequences are very different.
Joe
Your home is still the collateral. It IS essentially a mortgage. Thumper
So the home isn't collateral? Honest question, I don't know but I assume it would be. If the home is collateral, none payment would have similar consequences would they not?
How about if I leave with "the fine details of the contract are different, but your house is still on the line"?
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