Just looking for advice here. I have a 5 year interest only ARM on a house. Owe around 103K on it. House is valued at around 150k. Instead of refinancing to avoid the balloon payments, I am thinking about just paying off the whole loan. The problem is paying it off would leave me with little "nest egg" money and I would like to be able to tap into the equity if I need to. So a HELOC sounds good to me because I would only pay interest if I actually used the credit. I just have a couple of questions here. 1. Would the interest rate on a HELOC be comparable to a fixed loan? They actually look lower from what I've seen. 2. The home is an out of state "second home". Does this matter? 3. Do HELOC have a lot of financing fees? It would appear much simpler than a conventional load so I think any fees would be less.
I'm no expert, but are the concern of not paying it off due the fact of the fear of job loss in this economy? If you can pay it off, then can't you just borrow against that equity in the house and have cash flow to smooth you over till you accumulate more funds?
basically it. I want to pay it off to increase cash flow. But doing so would pretty much get rid of my nest egg. Could i pay it off and then get a HELOC on the house?
I think you might have to get the HELOC in the state where the second home is located. I would assume it's not Texas... HELOCs are governed under restrictive rules in Texas, I've heard. Maximum withdrawal (monthly?) is like $4,000. Most institutions around here (NC) pay all closing costs on HELOCs above $10,000.
It appears that you will be drawing on the HELOC in a few years, instead of now. If you refinance now, you are locked in at the lowest rates. I don't see rates staying this low . There will be high inflation from the stimulus package for the next few years. The banks typically raise lending rates to still make a profit after inflation. You might want to cross post over at a personal finance board, instead of here. There are some really sharp people on those boards, and even friendly loan officers.
the rates for helocs are much lower than fixed loans, however these rates are adjustable based on prime....if you lock, you can lock for 3,5,or7 years at a much higher rate... im not quite sure banks are lending for helocs on "second homes" there typically are no closing costs on helocs, maybe $350 at the most the minimum you can take out on helocs is $4k each time you want to borrow against it my suggestion is to refinance the house at the current low rates and keep your cash on hand and hope you can find a return thats better than your interest rate on the mortgage.
You are still going to have to go through title and a closing process. The title alone is likely more than $350.
thanks for the input guys. that's the problem. I think the best investment for me would be to eliminate interest payments. everything looks pretty grim right now.
I wouldn't do it. You could pay it off and the house go down in value and you would lose the amount you could get out of your HELOC. Cash is king. HELOC =/ cash.
I have been told (or read it on the Internet) that you need a primary mortgage in order to get a secondary mortgage (HELOC). Also there may be tax implications. IIRC HELOC interest deduction can be limited if the HELOC gets too big. It might wise to call a bank in the house's state and talk to them about HELOCs.
Yeah. I gotta mull it over more. If I do it, I would basically get an extra 5k a year by eliminating mortgage payments. But as you say - HELOC != $$ Maybe I should build a time machine and go back to 2005 and sell the house i live in.=)
You can find some safe investment out there that will give you close to 4%. Since you have $103k, just invest that and you'll get close to that $5k. Plus you don't lose any of the flexibility that cash gives you. Remember, the bank can rescind your HELOC at any time if they think your house has gone down in value or any other reason.
as an aside, though somewhat relevant.... and maybe it's a silly question, but... can you refinance debt on a Heloc? when I got mine, the rates were much higher than they are now.
