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December 18, 2008
Question For Adam on refinancing
Adam,
ive seen you post on this topic but wanted to run this past you for your thoughts.
Was thinking of getting a HELOC for 250k. For arguments sake let's say this is agreed (it should be given the equity we have in the house even if I assume 20% price decline). I take that 250k and pay down the mortgage. The idea being to reduce our interest cost. Currently we have a 30 yr fixed rate Jumbo mortgage at 6.25% so believe this should be worth at least researching at this point.
Question would be: what would be the typical fees involved ? Would we have to pay mortgage tax on this ? Any other significant fees to consider ? (>$500)
Thanks
Stu
Comments
What's your logic behing taking out a $250k HELOC to pay off a $250k mortgage?????
The rate on the HELOC will most likely be higher.
Posted by: daveinbedstuy at December 18, 2008 8:21 AM
Dave,
Mortgage = 6.25.
Multiple heloc quotes at 4.25 this week. 200 bps may make this worthwhile. Be suprised if interest rates went anywhere in 2009. If they did, we'd just pay off the Heloc.
You could argue just pay off the mortgage now but we want to hold on cash and reduce monthly payments.
Only sticking point I see is mortgage tax which negates the interest benefit.
Posted by: 10thStreetReno at December 18, 2008 9:17 AM
You're substituting a riskless fixed rate with a very risky variable rate. Not a smart move. It makes much more sense to refinance the mortgage at a much lower fixed rate. You will not have to pay the mortgage tax on the refi. Just call Adam.
Posted by: daveinbedstuy at December 18, 2008 9:50 AM
Dave,
That's the problem though. Not clear to me how we'd get the 4.5 on the refi given we have a jumbo loan. Perhaps we could split the mortgage in two to obtain a conforming size loan ? Not sure that's possible. Either way, feels like we could and should try to take advantage of the lower rate environment, whichever vehicle works on that is fine by me.
The variable IR is not really an issue given we'd have the ability to remove that exposure should the rate environment materially change.
Posted by: 10thStreetReno at December 18, 2008 10:02 AM
I'd wait a few months. Bank rates are slowly but surely going down.
Posted by: IronBalls at December 18, 2008 10:18 AM
Hey, Haven't had a chance to check the B-Stoner pages today yet.
In most cases I would not recomend a HELOC over a fixed rate but as everyone know we are in a declining rate environment and I really don't see them raising rates soon to fight off inflation. Almost every HELOC product I've seen doesn't have closing costs. The bank pays for everything. Watch out though, a lot of banks are actually freezing client's HELOCs right now. If you have a 100k line and only owe 50k, they will freeze your line and will not allow any more draws on it.
That said Fixed rates are amazing right now and I wouldn't pass up an opportunity to get a Jumbo rate in the high 4's low 5's. I don't know your exact particulars so I don't want to quote an exact rate. If you do a CEMA you would only pay the mortgage tax on the "new money" or the closing costs and any money that you "cash out"
It's your call but I would compare both options side by side. The issue that you may have is when your HELOC rate starts to move upwards I really couldn't tell you what Jumbo mortgage rates will be. I would think that if HELOCs rates are moving up then you may have already missed an opportunity to lock in a low Jumbo rate.
Respectively, I wouldn't be a greedy and I would lock in a low fixed rate..
Posted by: Adam Dahill at December 18, 2008 2:20 PM
Adam, you mention something in the above post I was wondering about: I just paid off the last of my 60K HELOC at Citi, and after I did, I wondered if in this environment (the mess they are in) they would just shut me down and/or take away my borrowing privileges. That was the only debt I owed on my home, so they couldn't close me out by claiming I am in too much debt.
I hate to borrow 60K and put it in my 1% money market just for the sake of keeping the line open...but is that what you would advise me to do?
Posted by: dylanfan at December 18, 2008 2:35 PM
dylanfan-
they can only shut your line if the equity in your home has declined below a certain treshold (covered under "Regulation Z" as a min. 50% equity decline). Since you mentioned it is the only debt, they cannot shut off your line. If they try, you should appeal. But I would not draw on it just to keep it open in your case.
Posted by: bhabe at December 18, 2008 2:53 PM
Just call them to check. I wouldn't draw on the line either just to keep it open.
Posted by: Adam Dahill at December 18, 2008 3:01 PM
I don't know if there is an atty who can opine but I did hear that having a HELOC or 2nd mortgage does invalidate some of the protection that a primary residence has in bankruptcy. Has anyone heard similar info.
Posted by: Ozymandius at December 18, 2008 3:31 PM
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