HELOC Question..

19 years ago

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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Comments (4)

ericasj
19 years ago
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!)

Erica
mgerken73
Original Author
19 years ago
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!
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Things really are crazy now for sure- I am the one who posted before out my HELOC getting frozen right in the middle of my major house renovation. I decided to contact another bank for a new HELOC, and at the same time went down the path with my existing bank providing a new appraisel. Before we did our renovation, we had two realtors come to our home to advise us on what houses were selling for in like size, condition to ours, and what they thought the renovation might add. They both replied with a number that was very close to each other, assuming that things do not change too much (we live in a very desirable part of town, that did not get the huge run up on prices and no big drops lately). Then, the appraisor gave us another number, about 20% lower than the realtors but high enough to continue our HELOC if our original bank actually wants to do so. Then, the new bank denied us a HELOC, stating that their compturized valuation came in too low- It was so low it was laughable- it was almost half lower than our actual appraisel. Now, I understand being conservative, but that is ridiculous. I almost wonder it they had the wrong house. As by chance, on the same day the county sent us our new assessment, which went up by 10% of course. At this point, our contractor has to be paid and the original bank is taking forever to review our new appraisel and I am about done with the whole thing. We are very fortunate in that I am going to be able to sell enough stock to cover what we owe, but it was not what I planned when I started this whole thing, and I hate putting so much more cash into the house. Even with the HELOC, we would have been at 80% LTV, and now we will be more like 60%. We don't plan to sell for at least 10 years, so at least I can enjoy my investment :)
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Hi Harriet, You're paying 8.25%, deductible, on your HELOC. You're talking about investing at 5% ... taxable. Which will produce what rate, after-tax? Why do you need to worry about an emergency fund? Your HELOC is almost certainly for a larger amount that you owe currently, so if you pay most (or all) of the $20,000. down on the loan, you'll have that much more available should you need it in the HELOC, won't you? Keep paying at your current rate on the loan, so it'll be paid off sooner. I can't give any advice on Roth stuff, for I know nothing about it (being a furriner). We have retirement accounts here in Canada and most financial advisors say that every person earning employment income who's a taxpayer should use them, but some of us disagree - for reasons that relate largely to the varying tax situation that affects various kinds of income, when it's applied and the fact that every dollar of proceeds of one's retirement fund is fully taxable, on withdrawal. By the way - maybe you should arrange a HELOC here in Canada. I have one fully secured by securities and they recently quoted about 6.25%. I'm waiting for a market correction to draw on it again - the market's too high, right now. And precarious. An investment group that meets monthly that I've attended for half a dozen years or so were rather largely antsy about the market at last month's meeting. Hope you make the decision that's wisest for you folks. ole joyful
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Roxyl, we are doing this now (closing next month) - we will not draw the money out until closing. Our house is not going on the market until we close - but our mortgage broker said that was not an issue (we are not on the market now). There is a prepayment penalty with ours if we pay off in less than 3 yrs of $500. What our broker recommended is that if we pay it off (we plan to when we sell our house) then he advised us not "close out" the line of credit (leave it open) - that way it is free for the first year, second year charge is $75, third year is $75 - total $150 vs the $500 charge if we call them to officially close the loan off their books. After that the HELOC closes automatically after 3 yrs unless we extend the term. Good question about how the open HELOC would affect credit (even if the balance is $0) - thank you - I will ask our broker that in the morning!!
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I'm confused. Why would you triple debt yourself as in a HELOC, loan and mortgage AND not have enough to pay off your existing mortgage when you will have approx 120K equity in the new home? To me, the logical thing to do is to put less down on the new home, pay off the HELOC and have enough to take to the closing table. Then you won't have to take out the third loan or have to pay extra when your current home sells. The lender will look at your debt to income ratio and the fact you will be unemployed will play into their decision. Since you will be unemployed, you're taking a huge risk. I really don't understand your logic in this situation. Perhaps I'm missing something?
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joyfulguy
19 years ago
What's Countryside's reason for making this offer?

ole joyful
mgerken73
Original Author
19 years ago
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!

HELOC Question..

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ericasj

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