HELOC question – what would you do?

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My husband and I purchased our first home in January 2005. We put no money down other than $ 1500 earnest money, which we got back at closing. We had never owned a home before and really didn’t know what we were doing.

The house was purchased for $ 199,900. We were told that PMI was bad, and we didn’t have any money to put down, so we did an 80/20. The 80 portion is a 30 year fixed at 6%. The payment is $ 1236.00 a month, and was originally financed through Greenpoint Mortgage but was quickly sold to Countrywide in the first 3 months. I don’t have a problem with this mortgage or the rate.

The HELOC was originally $ 41,000 and an adjustable rate, and is still through Greenpoint Mortgage. It’s ranged from as high as 11.5% to the current 8.25% interest rate. All of the payments each month (the payment that is due) is going towards interest only, so I still owe $ 40,996.11 as of today, after nearly 4 years of payments – and yes, I’ve paid higher than the minimum payment, but it seems to be eaten up by fees every year.

The HELOC is listed on my credit report as a revolving account, so it looks like I have 40k of credit card debt. My current credit scores range for all three bureaus around 720.

I really hate the HELOC, but because my other loan is only 4 years old, I only have about $ 8k of equity.

Here’s the question. Knowing the mortgage industry right now and how hard it would be to get a loan, do I try to refinance the HELOC and my original loan into one loan? I’m afraid of losing the 6% interest rate if I do that. Do I just focus on the HELOC and throw every available cent into it to get it paid off as fast as possible? Or should I try to refinance just the HELOC to get a fixed rate – is that even possible?

I need suggestions 🙂

  1. Reply
    May 2, 2011 at 1:17 am

    With the way the mortgage industry is, and the fact that you have so little equity in the home, you probably won’t be able to refinance it now. I would concentrate on paying it down as much as you possibly can now until you end up wanting to sell the home or the market turns around enough that you can refinance.

  2. Reply
    9 daughters
    May 2, 2011 at 1:47 am

    You’re right about your original loan. At 6% fixed it’s a good one. What you didn’t say is what you’re home is worth right now. Most likely it’s worth about what it was at the time you bought it, or close to that amount. On a refinance they will normally only loan 80% of the home’s appraised value. Given that you already borrowed 80% on the original loan and now you want to borrow an additional $ 41,000 the home probably isn’t worth enough to refinance both loans into one. So that gives you two reasons against refinancing both loans. A third would be the large fees associated with refinancing your first mortgage.

    The good news is your credit scores are good. It doesn’t cost anything to shop around at a few lenders to see what’s possible to get just the HELOC refinanced.

  3. Reply
    May 2, 2011 at 1:59 am

    The 80/20 loan package you got is a classic “subprime” structure. I agree with the previous poster that you are unlikely to be able to refi into a single loan due to lack of equity. Concentrate on paying off that HELOC with every penny you can come up with. Maybe even consider a second job for a while to do it.

  4. Reply
    Steve D
    May 2, 2011 at 2:59 am

    First, if you refinance both your HELOC and First Mortgage into one loan, you will end up paying PMI, since that will put the loan above the 80% mark.

    Next, you may not be able to refinance. Since 2005, real estate prices have dropped and since you have paid only about $ 8,000 toward the first and nothing at the second, you are more than likely upside down. You would need to get a professional appraisal to know t his, but if you have any real estate friends, have them run recent comparables from the MLS to see what houses like yours are going for.

    If you do decide to refinance the whole thing (assuming you are not upside down), according to bankrate.com, the average 30-year mortgage right now is about 6%, so you shouldn’t lose much if anything off the fixed interest rate you have now. You can try for a 2nd mortgage with a fixed (probably not a HELOC) – 50K fixed home equity loans are averaging about 7.75% (somewhat below what you are paying now). Wow, not sure what fees you have been paying (my HELOC has none), so if you can get out of the one you have, it would seem to be wise.

  5. Reply
    lonnie w
    May 2, 2011 at 3:50 am

    REfinancing the helo is not an option because no lenders will do that anymore. You will have to refiance both mortgages into one. Based on your appraisal you will find out if you need to pay PMI> Pmi is not bad. it is now tax deductable. You might be able to get a rate around 6.25 or 6% on a good day. It does not hurt to look into. The loan is not finalized until you signed the papers. Basically, if you get one fixed rate even at 6.25% it is still less than the higher rate of 8.25% you might even get around the same payments that you have right now but instead will be paying off principal. Good luck. IF you have any questions you can email me at mymortgage2008@yahoo.com.

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