Refinance Mortgage Question

northjerseyguyOctober 18, 2010

I'm not sure if this is the right forum to post this question or not but here goes.

I currently have a 30yr fixed mortgage @ 5.875. There is $405,000 left on the mortgage. I also have a $110,000 line of credit that has a balance of $0.

I am refinancing the mortgage for $405,000 @ 3.875. The question is, what happens to the line of credit? I'm assuming that once I refinance the first mortgage, the line of credit which is through a different bank will automatically be closed. Is this the case?

BTW, when I used to check in here long ago Dave Donhoff was around to answer a lot of these mortgage questions. Dave if you are still around, what does happen to the HELOC? Actually if anyone knows I'd appreciate your knowledge as well. Thanks.

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larke

I would never take someone's guess here - ask the bank.

    Bookmark   October 18, 2010 at 7:44PM
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qdwag

Had a similar situation last year,and just got a new HELOC at no cost from the new bank that did the re-fi

    Bookmark   October 18, 2010 at 9:32PM
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dave_donhoff

Hi northjerseyguy,

I am refinancing the mortgage for $405,000 @ 3.875. The question is, what happens to the line of credit? I'm assuming that once I refinance the first mortgage, the line of credit which is through a different bank will automatically be closed. Is this the case?

Yep, that's exactly what will happen in the situation you've described. If you want to keep that old HELOC and its terms, you'd have to request a resubordination action from that HELOC lender simulataneous with your new 1st refi.

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   October 18, 2010 at 11:09PM
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pamghatten

While Dave's answer is basically correct, there's really more to this.

1. What would you like? Do you want to keep the HELOC in place?

2. If so, your lender will ask you about that and determine if your CLTV, or combined loan to value (1st and second mortgages added together), fit within their guidelines for the product you are applying for. Most products have specific LTV and CLTV requirements.

3. If your scenario is within the guidelines based upon your most recent appraised value, then you will be required to have your current HELOC Lender re-subordinate that loan.

4. If you do not want to keep it open, or that loan does not fit within the Lenders guidelines, you will either have to close the HELOC or renegotiate a smaller line to fit the guidelines.

Only your lender can tell you what the guidelines are for their particular loan program.

    Bookmark   October 19, 2010 at 12:33PM
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brickeyee

"While Dave's answer is basically correct, there's really more to this. "

The only "more to this" is if the OP wants to get anther HELOC.

The original one is dead before the refi is completed.

If the refi paid off the first with the HELOC still present the HELOC would become the first mortgage at the instant of paying off the existing first.

This would leave the refi lender as a second, something they will NOT allow to happen.

If you want to have a HELOC you will have to go through the entire qualification process again for a NEW HELOC.

The new first is NOT going to allow the old HELOC to come before them, so either resubordination or a NEW HELOC.

This is one of those cases were the exact order and timing of transactions DOES matter.

    Bookmark   October 19, 2010 at 3:42PM
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jane__ny

I don't know if this is relevant, but we paid off our mortage with our line of credit. Paid off a car loan also. We did this because our first mortgage was 6.5%. The line of credit was adjustable and would start out at 3.5%. We knew we would be listing the house. So we paid off the mortgage with the HELOC used the rest to do repairs to the house for sale. Our monthly payments dropped to $200.00 a month. We sold the house 2 yrs later and paid it off at closing.

Worked for us because we didn't want to use anymore of our cash paying the first mortgage. The Heloc was interest only and interest got as low as it could go.

Jane

    Bookmark   October 19, 2010 at 11:13PM
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brickeyee

"I don't know if this is relevant, but we paid off our mortage with our line of credit. "

And at that instant the HELOC became a first mortgage.

    Bookmark   October 20, 2010 at 8:38AM
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