Refinance a HELOC
If you are looking to refinance a HELOC (Home Equity Line Of Credit) , here are a few options to keep in mind. You may send us a message here for more information. With your written permission, we will have one of the trusted lenders that we work with to contact you and answer any of your questions.
Refinance a HELOC – Close the old HELOC and Open a new variable rate HELOC
#1 Refinance a HELOC on its own by closing it and applying to open a new HELOC especially if the draw period on your existing HELOC has now matured (typically 10 years).
In most cases, if your HELOC has matured – both interest and principal payments will be required causing your total mortgage payments to go up.
To refinance a HELOC, simply contact your existing HELOC lender or bank, or shop for another bank or lender with the best HELOC terms and rates. Most HELOC rates are based on the Wall Street Journal Prime Rate plus a margin (check your HELOC loan documents). Note that HELOC interest rates have recently increased as the Federal Reserve raised key interest rates.
Refinance a HELOC – Close the old HELOC and Open a new Fixed Rate Home Equity Loan
#2 Refinance a HELOC and convert it to a Fixed Rate Loan Option Home Equity Loan if you are concerned with rising lines of credit interest rates.
The interest rates on Home Equity Loans with fixed rates are much higher than variable HELOC rates. The rates are typically fixed for the life of the home equity loan – for example 10 years, 15 years, 20 years. You are also required to make both principal and interest payments on fixed rate home equity loans.
Note: Many banks and lenders offer the option for you to have a variable rate Home Equity Line of Credit with an option to fix the rate on your existing line of credit balance with a defined amortization term.
Refinance a HELOC by combining your First Mortgage and Subordinate Loans (Line of Credit and/or Home Equity Loan) into one mortgage
Cash out refinance or HELOC refinance?
By rolling over the loan balance of your HELOC into your first mortgage through a cash out refinance, you might enjoy the simplicity of having just one mortgage payment. If you have enough equity in your home (typically 20% equity) you will avoid having to pay a mortgage insurance premium usually required when your overall home loan balance exceeds 80% of the lender- appraised value of your home.
Need more information on which is the right option on financial decisions such as cash out refinance vs. HELOC?
You may send us a message here if you need more information on cash out refinance vs. heloc option. With your written permission, we will have one of the lenders that we work with to contact you and answer any of your questions.
Will your home value support a cash out refinance to pay off your HELOC and perhaps other bills?
Find out your home value by accessing our Free Home Value Estimator here.
Many homeowners prefer the option of refinancing their mortgage (cash out refinance) and rolling over the balances of the HELOC into the mortgage to take advantage of lower interest rates and possibly lower mortgage payments. If you choose to do a cash out refi, consider a fixed 15, 20, 25, or 30 year mortgage, loan if you do not want to have to worry about variable payments that could go through the roof especially as HELOC rates go up.
Need more information on refinancing a HELOC?
You may reach one of the lenders we work with here.
Key Facts about Home Equity Line of Credit
The home equity line of credit (HELOC) allows the homeowners flexibility to finance a major home improvement, major purchase, or even pay off some credit card bills.
There is an initial draw period in a HELOC (usually 10 years). During the draw period, most HELOCs only require an interest payment (which makes the payment really low).
If you opened a line of credit say in 2005, the HELCO draw period will mature in 2015.
What happens when the draw period expires?
Once the HELOC draw period expires you have to start making payments not only on the interest but also the principal over a shorter period of time. This causes the monthly payment to jump significantly. For some, this could cause a line of credit payment to go up from $300 interest only to over $1,000 monthly payment towards the principal and interest!
Coupled with higher interest rates that could change every month in a variable rate line of credit, some homeowners could face serious financial hardship.
If your situation warrants that you refinance your HELOC, here are a few reminders.
You will need to qualify to refinance your HELOC. This means you will need to prove your credit worthiness and income sources to the lender.
In addition, the appraised value of your home must support your refinance application. Your home must be appraised by a third party appraiser hired by your lender.
In most cases, you will need at least 20% equity in your home after refinancing the total of your first mortgage and second mortgage (HELOC or home equity loan) balances to avoid a mortgage insurance premium tacked on to your monthly payment. A 20% equity in your home also means an 80% Loan to Value (LTV) in the lender’s language.
Loan to Value Calculator: 20% Equity Scenario or 80% Loan to Value Scenario
First Mortgage Balance $320,000
Second Mortgage (HELOC) Balance $80,000
Combined Loan Balance: $400,000
Home Value: $500,000
Loan to Value is $400,000 divided by $500,000 80%
If you have less than 20% equity, your lender may recommend that you still keep your first mortgage and HELOC separate to avoid the mortgage insurance premium penalty. Click here to read our article on how to avoid paying mortgage insurance or how to remove mortgage insurance.
Need more information on refinancing your home loan, you may reach one of the lenders that we work with here for more information.
Access our Free Home Value Estimator or Calculator here.
Are HELOC rates going up?
The simple answer is yes. In the last few years line of credit rates have stayed low. However, the Fed Reserve as of December 16, 2015 officially raised interest rates for the first time since the recent financial meltdown. Rates are expected to increase over time in 2016 unless economic indicators change.
Are interest rates going up in 2016? Check out the following recent articles
- Fed Ends Zero-Rate Era; Signals 4 Quarter-Point Increases in 2016 – Read the article on Bloomberg.
- Economists Overwhelmingly Expect Fed to Raise Interest Rates in December – Read the article on WSJ.com.
- It’s official: Fed raises interest rates for first time in nine years- Read the article on the HousingWire.
What are the HELOC rates based on?
Your HELOC rate depends on your signed loan agreement.
Typically HELOC rates are based on the U.S. Prime Rate (Wall Street Journal Prime Rate) plus a Margin Rate.
A week ago (2nd week of December 2015) the U.S. prime rate held steady at 3.25%. Now at this writing, the US Prime Rate increased to 3.5%. Not bad. However, if your HELOC rate is based on a rate that could north of 6-9-12-18% then it could spell trouble for homeowners. Check out the US Prime Rate history here.
How is the HELOC rate calculated?
For some homeowners, their HELOC rates could be Prime Rate + 0% ( a zero to lower margin depends on the borrower’s credit worthiness and Loan to Value or Customer Discounts)
Most homeowners pay HELOC rates with Prime Rate+ .25% to 1%-3% in Margin (please check your loan documents).
Since the Prime rate could potentially increase every month (assuming the Federal Reserve keeps hiking interest rates), you will see your HELOC rate and payment go up as well.
Photo Courtesy of the Wall Street Journal: Interest Rates published on December 17, 2015
You may send us a message here for more information. With your written permission, we will have one of the trusted lenders that we work with to contact you and answer any of your questions regarding a cash out refinance or heloc refinance.