HELOC Question..

mgerken73March 25, 2005

We bought our house in October, with 2 loans, an 80% mortgage (fixed rate), and a HELOC for 15%, which has a variable rate. The other 5% we put down. Since closing, the mortgage for 80% has been sold to another mortgage company (Countrywide, if this helps).

Countrywide is offering us a HELOC for roughly 10% the homes' value. Is this worth looking into? I've been ignoring their solicitations, figuring we don't carry CC balances, so have no real need for the additional expense of closing on a second HELOC, etc..

We have plenty of credit cards should we need it, and although we haven't paid down that much of the existing HELOC we have yet, there is some room for a few hundred dollars (guessing, maybe 1K by now) if we do need some cash. Which hopefully will increase as we make our payments each month:)

We plan to re-asses our house in the next year (or 2) to hopefully have 20% equity based on the increasing home values in our area, as well as our mort. pmts, etc. We hope we'd then have our 20% equity, and then the HELOC we currently have can be refinanced to a fixed rate loan.

Does this make sense? Is there any benefit to taking Countrywide up on their HELOC offer? any advice would be appreciated.. Thanks!

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Congratulations on buying your hosue! Just some random thoughts...

Interest rates are starting to creep up, along with oil and other prices. If mortgage interest rates go up too much, house prices may stop going up as they have been because there is a limit to how high a mortgage payment people can afford. So there's a possibility your current variable HELOC interest will increase, plus your house might not increase in value enough to make your equity go up to 20% in two years. So you'll still be stuck paying PMI. If you start to feel a cash crunch and actually use the second HELOC, you could end up owing more than the house is worth--a very nerve-wracking situation I'm sure!

I don't know if your house is brand-new, or an older one that may start needing maintenance sooner. From my experience, an older house can eat up way more in maintenance and repairs that you could anticipate. If your house is new, maybe your need for extra cash isn't so great.

Would Countrywide go for a 15% fixed one to replace your 15% variable one? At least then you wouldn't have to worry so much about the rates going up. If not, I would tend to look for a credit card offer with a long 0% introductory period to keep for emergencies. (Since it sounds like you are disciplined about not carrying a balance.) You can find cc offers listed at www.bankrate.com.

Best case scenario, spend less and pay down the existing HELOC as fast as you can. (Easier said than done, I know. I'm in kind of the opposite situation--lots of equity in our house that I don't want to jeopardize, but a cc balance I want to pay off. Same solution--I need to spend less!)


    Bookmark   March 28, 2005 at 8:36AM
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Thanks for the reply Erica :)
yes its an older house. I don't plan on spending into a second HELOC, I just figured if they were offering me this extra equity of about 10% of our purchase price, that i'd get to that magic 20% sooner?

I should probably just wait the year and see where I stand :) I didn't think i could refinance my HELOC so soon? I'll look into that, i'm sure the extra closing costs would make up for interest savings in the future..

But my mortgage broker (friends' mom who i trust) said to come back to her after a year (since before then they would use the home purchase price as value), and see where the assessment stands.

but you are right - we will try to pay off the HELOC asap. However, its like 40K - its going to be a while!

Thanks again!

    Bookmark   March 28, 2005 at 9:12AM
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What's Countryside's reason for making this offer?

ole joyful

    Bookmark   March 29, 2005 at 6:42PM
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They say i am 'eligible for it'.. My thinking, is its like when you get credit card offers in the mail, they want to extend you more credit so they can make money off of the interest. Granted i know we do have some equity in our home (our down payment + probably a little increase in market value).

But then you have to also pay additional closing fees, etc. i'm sure. My main idea is its just another vehicle they have to make money. and we don't really want to spend money on closing on an account we don't plan to use in the near future. And of course, the interest rate is not fixed.

BTW-they think i'm crazy for turning it down. which prompted me to post a question here..
I wasn't sure if there was a benefit out there i could be missing.
I guess when we plan on doing home improvements, or maybe buying a new car it would be worth it to have the tax-deductible interest.
So i guess i'm just confused if its worthwhile :)
Thanks again for your interest!

    Bookmark   March 30, 2005 at 11:13AM
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